Yukos Capital c. Russie, Final Award, 23 juil. 2021

2000 Tax Assessment	Tax Assessment of Yukos Oil by the Russian Federation for the 2000 tax year
2001 Tax Assessment	Tax Assessment of Yukos Oil by the Russian Federation for the 2001 tax year
2002 Tax Assessment	Tax Assessment of Yukos Oil by the Russian Federation for the 2002 tax year
2003 Tax Assessment	Tax Assessment of Yukos Oil by the Russian Federation for the 2003 tax year
2004 Tax Assessment	Tax Assessment of Yukos Oil by the Russian Federation for the 2004 tax year
Armenian Branch	A branch of offshore Yukos Oil subsidiaries, headed by Yukos CIS Investments, a limited liability company incorporated in Armenia
ARSIWA	International Law Commission, Draft Articles on Responsibility of States for Internationally Wrongful Acts [2001] 2(2) YB ILC 26
ATAs	Advance Tax Agreements
August 2004 Loan	The August 2004 loan, made to Yukos Oil by Yukos Capital, in the principal amount of USD 355 million
B Loan	A USD 1.6 billion loan agreement between Yukos Oil. and SG
Baikal	OOO Baikalfinancegroup, a company incorporated in Tver
Brill	Brill Management Ltd, incorporated in the BVI
Brittany	Brittany Assets Ltd
Brittany Loan	The loan established pursuant to the Brittany Loan Agreement
Brittany Loan Agreement	Agreement establishing a loan between Brittany (lender) and Yukos Capital (borrower) dated 20 November 2003
BVI	The British Virgin Islands

Claimant / Yukos Capital	Yukos Capital Ltd, formerly Yukos Capital S.à r.l., the Claimant
Corporate Reorganisation	The changing of the Claimant’s domicile from Luxembourg to the British Virgin Islands, as notified to the Tribunal on 15 January 2018
Counter-Memorial	Respondent’s Counter-Memorial on the Merits dated 11 July 2018
Cyprus companies	The Cyprus holding companies Dunsley Ltd and Nassaubridge Management Ltd
Cyprus DTA	Cyprus-Russia Double-Tax Agreement
December 2003 Loan	The December 2003 loan, made to Yukos Oil by Yukos Capital, in the principal amount of RUB 79.3 billion
DKW	Dresdner Kleinwort Wasserstein
DKW Valuation	Valuation of YNG by Dresdner Kleinwort Wasserstein, dated 6 October 2004
Dunsley	Dunsley Ltd, incorporated in Cyprus
ECT / Treaty	Energy Charter Treaty, 1994
ECtHR	European Court of Human Rights
English Judgment	Judgment of 24 June 2005 of the High Court of England and Wales
Fargoil	OOO Fargoil, incorporated in Mordovia, Russia
Federal Tax Service	The Federal Tax Service of the Russian Federation
FET	Fair and equitable treatment
First Appeal	Claimant’s appeal dated 28 July 2006 of the decision denying its First Bankruptcy Application
First Bankruptcy Application	Claimant’s application of 27 April 2006 for the inclusion of its claims in the Register of Creditors
First Cassation Appeal	Claimants cassation appeal dated 27 November 2006 against the suspension of its appeal from the First Bankruptcy Application
FMV	Fair market value

Gazprom	OAO Gazprom
Gazpromneft / Sibneft	OOO Gazpromneft, a subsidiary of Gazprom, formerly Sibneft
Group Menatep	Group Menatep Ltd, a limited liability company incorporated in Gibraltar
Giga-dividend	A USD 2 billion dividend issued by Yukos Oil, declared on 28 November 2003
Guidelines	World Bank Guidelines on the Treatment of Foreign Direct Investment
Hearing	The hearing on the merits, held between 1-12 July 2019 in London
Hearing on Jurisdiction	The hearing on jurisdiction, held between 31 August and 4 September 2015 in The Hague
Hedgerow	Hedgerow Ltd, formerly Rospan
Hedgerow Loan	The loan established pursuant to the Hedgerow Loan Agreement
Hedgerow Loan Agreement	Agreement establishing a loan between Hedgerow (lender) and Yukos Capital (borrower) dated 18 August 2004
Hulley Final Awards	The final awards rendered in Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation
Hulley Awards	The interim awards on jurisdiction and admissibility and the final awards rendered in Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation
Hulley Proceedings	The arbitration proceedings in Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation
Interim Award	Tribunal’s Interim Award on Jurisdiction dated 18 January 2017
JHV	James Holding Venture Corp, incorporated in the BVI

Loans	The December 2003 Loan and the August 2004 Loan
Low-tax regions / LTRs	Jurisdictions within the Russian Federation with lower profit-tax rates
LTR Subsidiaries	Subsidiaries of Yukos Oil registered in low-tax regions
Luxembourg DTA	Luxembourg-Russia Double-Tax Agreement
Memorial	Claimant’s Memorial on the Merits dated 27 October 2017
Miwok	Miwok Wealth PIC Ltd, an entity incorporated in the BVI into which Yukos Capital S.à r.l. was merged
Moonstone	Moonstone Investments Ltd, incorporated in the BVI
Nassaubridge	Nassaubridge Management Ltd, incorporated in Cyprus
Nomos	NOMOS Law Office, the firm representing Yukos Capital in the bankruptcy proceeding
Notice of Arbitration	Notice of Arbitration dated 15 February 2013
Parties	The Claimant and the Respondent
PCA	Permanent Court of Arbitration
PCIJ	Permanent Court of International Justice
PO N° 1	Procedural Order N° 1 dated 24 April 2014
PO N° 2	Procedural Order N° 2 dated 20 January 2015
PO N° 3	Procedural Order N° 3 dated 13 November 2017
PO N° 4	Procedural Order N° 4 dated 18 May 2018
PO N° 5	Procedural Order N° 5 dated 28 September 2018
PO N° 6	Procedural Order N° 6 dated 1 November 2018
PO N° 7	Procedural Order N° 7 dated 10 December 2018
PO N° 8	Procedural Order N° 8 dated 1 April 2019
PO N° 9	Procedural Order N° 9 dated 30 April 2019
PO N° 10	Procedural Order N° 10 dated 30 April 2019

Production Subsidiaries	Yukos Oil’s main oil-production subsidiaries, being Yuganskneftegaz, Samaraneftegaz and Tomskneft
Promneftstroy	OOO Promneftstroy
Promneftstroy action	Proceedings in the Dutch courts regarding the ability of Yukos Capital to direct its claims pursuant to the Loans against Promneftstroy
PwC	PricewaterhouseCoopers
Ratibor	OOO Ratibor, incorporated in Mordovia, Russia
Rebgun action	Proceedings in the Dutch courts regarding the ownership of Yukos Finance
Register of Creditors	The three tiers of claims comprising the register of creditors in Yukos Oil’s bankruptcy proceedings
Rehabilitation Plan	Yukos Oil’s financial rehabilitation plan of June 2006
Rejoinder	Respondent’s Rejoinder on the Merits dated 14 May 2019
Reply	Claimant’s Reply on the Merits dated 8 January 2019
Respondent / Russia / Russian Federation	Government of the Russian Federation, the Respondent
RFPF	The Russian Federal Property Fund
Rosneft	Oil Company Rosneft OJSC
Rospan	Rospan Overseas Ltd, now Hedgerow
Russia / Russian Federation / Respondent	Government of the Russian Federation, the Respondent
Second Appeal	Claimant’s appeal dated 18 December 2006 of the decision denying its Second Bankruptcy Application
Second Bankruptcy Application	Claimant’s application dated 6 October 2006 for the inclusion of its claims in the Register of Creditors
Second Cassation Appeal	Claimant’s cassation appeal dated 10 April 2007 seeking to reverse the judgments on the Second Bankruptcy Application and the Second Appeal
Set-Aside Application	Respondent’s application to Swiss Federal Tribunal to set aside the Interim Award

Sibneft / Gazpromneft	OOO Gazpromneft, a subsidiary of Gazprom, formerly Sibneft
SN	Samaraneftegaz, one of Yukos Oil’s main oil-production subsidiaries
Société Générale	Société Générale SA
Stichting	Stichting Administratiekantoor Yukos International, a foundation incorporated in the Netherlands in 2005
Syndicate Loan	A USD 1 billion loan agreement between Société Générale and the Western Banks
Tax Assessments	The tax assessments of Yukos Oil by the Russian Federation for the 2000-2004 tax years
Terms of Appointment	Terms of Appointment between the Parties appointing the Tribunal dated 17 February 2014
The Hague District Court Judgment	Judgment of The Hague District Court dated 20 April 2016 in Action Nos C/09/477160 / HA ZA 15-1, C/09/477162 / HA ZA 15-2 and C/09/481619 / HA ZA 15-112, in relation to the Hulley Final Awards and the interim awards on jurisdiction and admissibility in the same cases
TMF	TMF Corporate Services SA, the manager of Yukos Capital
TN	Tomskneft, one of Yukos Oil’s main oil-production subsidiaries
Treaty / ECT	Energy Charter Treaty, 1994
UNCITRAL Rules	Arbitration Rules of the United Nations Commission on International Trade Law, 1976
VAT	Value-added tax
Western Banks	A consortium of European and North American banks that had granted loans to Yukos Oil, led by Société Générale
YNG	Yuganskneftegaz, one of Yukos Oil’s main oil-production subsidiaries
Yukos Capital / Claimant	Yukos Capital Ltd, formerly Yukos Capital S.à r.l., the Claimant

Yukos CIS	Yukos CIS Investments, a company incorporated in Armenia and the head of the Armenian Branch
Yukos Finance	Yukos Finance BV, a private limited liability company incorporated in the Netherlands
Yukos Group	All companies within the Yukos group of companies
Yukos Hydrocarbons	Yukos Hydrocarbons Ltd, a private limited liability company incorporated in the BVI
Yukos International	Yukos International UK BV, a private limited liability company incorporated in the Netherlands
Yukos Oil	Yukos Oil Company OJSC, a joint stock company incorporated in the Russian Federation in 1993
Yukos Tax Arrangement	The corporate structure designed by the Yukos Group for purposes of tax optimisation for the profits of Yukos Oil
ZATOs	Closed Administrative Territorial Formations within the Russian Federation

1.

The Claimant in this arbitration is Yukos Capital Ltd (formerly Yukos Capital S.à r.l.) (Yukos Capital, or the Claimant), a private company organised and existing under the laws of the British Virgin Islands (the BVI), with its registered address at Palm Grove House, PO Box 438, Road Town, Tortola, British Virgin Islands. The Claimant is represented in these proceedings by Mr Cyrus Benson, Ms Penny Madden QC, Ms Ceyda Knoebel, Mr Piers Plumptre, Ms Sophy Helgesen, Ms Sasha Kobyasheva and Mr Theo Tyrrell of Gibson, Dunn & Crutcher UK LLP, Telephone House, 2-4 Temple Avenue, London EC4Y OHB, United Kingdom.

2.

The Respondent is the Government of the Russian Federation (Russia, the Russian Federation, or the Respondent and, together with the Claimant, the Parties). The Respondent is represented by Lord Peter Goldsmith QC, Ms Samantha J Rowe, Ms Aimee-Jane Lee, Mr Conway Blake, Mr Maxim Osadchiy, Ms Monika Hlavkova, Ms Sonja Sreckovic and Ms Svetlana Portman of Debevoise & Plimpton LLP, 65 Gresham Street, London, EC2V 7NQ, United Kingdom.

3.

A dispute has arisen between Yukos Capital and the Russian Federation in respect of which the Claimant commenced arbitration pursuant to the Energy Charter Treaty (the ECT, or the Treaty).

4.

The dispute concerns the Claimant’s alleged investments by way of loans to its parent company in Russia, Yukos Oil Company OJSC (Yukos Oil), the Russian Federation’s alleged expropriation of the Claimant’s purported investments, and the Russian Federation’s allegedly unfair and discriminatory treatment of Yukos Capital. The Respondent objects to the jurisdiction of the Tribunal.

5.

By letter dated 23 May 2008, the Claimant 'notified the Russian Federation, through the Russian Ministry of Justice, of its claims under the ECT, accepted the Russian Federation’s offer to arbitrate and invited the Russian Federation to engage in settlement discussions.’¹

6.

On 25 July 2008, the Ministry of Justice informed the Claimant that receipt of that notice was not within the Ministry’s competence.²

7.

On 27 August 2008, the Claimant forwarded that notice to the Government of the Russian Federation and to the Administration of the President of the Russian Federation.³

8.

By Notice of Arbitration dated 15 February 2013, the Claimant commenced arbitration proceedings against the Russian Federation pursuant to Article 26(4)(b) of the ECT and the 1976 Arbitration Rules of the United Nations Commission on International Trade Law (the UNCITRAL Rules).⁴

9.

By its Notice of Arbitration, the Claimant appointed Mr J William Rowley QC as the first arbitrator. Mr Rowley’s address is 20 Essex Street, London WC2R 3AL, United Kingdom.

10.

By letter to the Claimant dated 3 May 2013, the Respondent appointed Professor Brigitte Stem as the second arbitrator. Professor Stem’s address is 7 me Pierre Nicole, 75005 Paris, France.

11.

On 8 October 2013, the Claimant requested that the Secretary-General of the Permanent Court of Arbitration (the PCA)act as the appointing authority with regard to the appointment of a presiding arbitrator, pursuant to Articles 6 and 7 of the UNCITRAL Rules. In its submission, the Claimant stated that the Parties were 'in agreement as to the employment of the list-procedure referred to in Article 6(3) of the 1976 Rules..., but wish for the list to be provided by the Secretary-General to include at least five names.’⁵

12.

On 9 October 2013, the PCA proposed to the Parties the use of a modified list procedure, allowing each of the Parties to eliminate a maximum of three names from a list of seven and requiring each Party to rank by preference the remaining names. On 15 October 2013, each of the Parties agreed to the PCA’s proposal.

13.

In a letter of 4 November 2013, the PCA implemented the modified list procedure, sending each Party a list of seven candidates who could be appointed as Presiding Arbitrator, and, in separate letters of 19 November 2013, each Party submitted comments to the PCA regarding the list of candidates.

14.

On 22 November 2013, Professor Campbell McLachlan QC was appointed as Presiding Arbitrator by the Secretary-General of the PCA. Professor McLachlan’s address is Victoria University of Wellington, School of Law, Old Government Buildings, 55 Lambton Quay, Wellington, New Zealand.

15.

By 18 February 2014, both Parties and all Tribunal members had signed the Terms of Appointment, confirming that: (i) the members of the Tribunal had been validly appointed in accordance with the ECT and the UNCITRAL Rules; (ii) the proceedings shall be governed by the UNCITRAL Rules; (iii) the Tribunal shall determine the legal seat of the arbitration in Procedural Order N° 1 after hearing the Parties on the issue; (iv) the language of the arbitration shall be English; (v) the International Bureau of the PCA shall act as registry; (vi) the issues in dispute shall be decided in accordance with the ECT and applicable rules and principles of international law; and (vii) the arbitral proceedings shall be held in private and all documents in these proceedings created for the purpose of the arbitration as well as all other documents or evidence produced by either Party shall be confidential, unless the Parties expressly agree in writing to the contrary.

16.

On 31 March 2014, each Party submitted arguments regarding the Tribunal’s determination of the seat of the arbitration. The Respondent proposed Vienna, Austria or Frankfurt, Germany, but indicated that it would also support the designation of Geneva, Switzerland, or Paris, France. The Claimant proposed The Hague, the Netherlands, or London, United Kingdom.

17.

On 12 April 2014, both Parties, all Tribunal members and Mr Jack L W Wass signed the Terms of Appointment of the Assistant to the Tribunal, confirming that Mr Wass would be appointed as Assistant to the Tribunal on the terms set out therein. Mr Wass’ address is Stout Street Chambers, Level 6, Huddart Parker Building, Wellington 6011, New Zealand.

18.

On 14 April 2014, the Tribunal convened a preliminary procedural hearing in Vienna, Austria. At the hearing, the Tribunal heard the Parties regarding the determination of the seat of arbitration and the issue of whether or not to bifurcate proceedings, and the Tribunal and Parties discussed a draft Procedural Order N° 1 and the procedural calendar. The following individuals attended the hearing before the Tribunal:

Claimant

Mr Cyrus Benson
Ms Ceyda Knoebel
Gibson, Dunn & Crutcher LLP
Mr Daniel Feldman

Party Representative

Respondent

Mr David Sabel
Ms Claudia Annacker
Mr Cameron Murphy
Cleary Gottlieb Steen & Hamilton LLP

Registry

Mr Hanno Wehland

PCA

Court Reporter

Ms Claire Hill

19.

On 24 April 2014, the Tribunal issued Procedural Order N° 1 (PO N° 1), in which it determined, inter alia, that the seat of the arbitration shall be Geneva, Switzerland. The Tribunal also decided to bifurcate the proceedings, setting forth a procedural calendar for a preliminary phase during which three of the objections raised by the Respondent to the jurisdiction of the Tribunal would be heard and decided. Those objections were:

(i) '[t]he Russian Federation never ratified the ECT and applied the ECT until October 18, 2009 on a provisional basis pursuant to Article 45(1) ECT only "to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’";⁶

(ii) '[t]he intra-company loans allegedly made by Claimant to Yukos Oil Company are not "investments" within the meaning of Article 1(6) ECT’;⁷ and

(iii) '[s]ince Claimant is a shell company with no substantial business activities in Luxembourg and is ultimately controlled by nationals of a third State, Respondent is entitled to deny Claimant the advantages of Part III of the ECT pursuant to Article 17 ECT.’⁸

20.

Pursuant to PO N° 1, the Parties submitted the following pleadings and evidence:

(i) On 28 July 2014, the Respondent filed a Memorial on Jurisdiction, together with an Expert Report of Professor Anton V Asoskov.

(ii) On 3 November 2014, the Claimant filed a Counter-Memorial on Jurisdiction, together with a Witness Statement of Bruce K Misamore and Expert Reports of Professor Paul B Stephan, Stuart B Gleichenhaus, and Professor Justice J H M Willems.

(iii) On 2 March 2015, the Respondent filed a Reply on Jurisdiction, together with a Second Expert Report of Professor Asoskov and Expert Reports of Professor Thomas Z Lys, Lionel Noguera, and Professor Dr Riemert Pieter Jan Lucris Tjittes.

(iv) On 15 June 2015, the Claimant filed a Rejoinder on Jurisdiction, together with a Second Witness Statement of Mr Misamore, further Expert Reports of Professor Stephan, Mr Gleichenhaus, and Professor Willems, and Expert Reports of Professor Stephen E Shay and Andrew Grantham.

21.

Following the exchange of the first round of pleadings, the Parties made a simultaneous exchange of requests for the production of documents from each other as provided by PO N° 1. Following the exchange of responses and replies, a number of requests remained outstanding, and, on 18 December 2014, each Party submitted a Redfern Schedule together with introductory comments, requesting that the Tribunal make an order on those requests. On 20 January 2015, the Tribunal set forth its decision on the Parties’ requests by issuing Procedural Order N° 2 (PO N° 2).

22.

Following the issuance of PO N° 2, the Parties exchanged correspondence on their respective compliance with the Tribunal’s decisions in that Order. By letter dated 26 March 2015, the Tribunal determined a number of requests made by the Respondent in relation to the Claimant’s compliance with the Tribunal’s Order. By letter dated 4 May 2015, the Tribunal determined a number of requests made by the Claimant in relation to the Respondent’s compliance with the Tribunal’s Order.

23.

A pre-hearing telephone conference was held by the Chairman with the Parties on 29 July 2015, the result of which were recorded by the Chairman in a Minute on Arrangements for Hearing on 31 July 2015.

24.

The Hearing on Jurisdiction was held over five days from 31 August to 4 September 2015 at the Peace Palace in The Hague. The following persons attended the Hearing on Jurisdiction before the Tribunal:

Claimant

Mr Cyrus Benson
Ms Penny Madden
Ms Ceyda Knoebel
Mr Piers Plumptre
Ms Sophy Cuss
Mr Sergey Okoev
Gibson, Dunn & Crutcher LLP
Mr David Godfrey
Ms Natalia Kantovich
Ms Sophy Bae

Party Representatives

Mr Bruce K Misamore

Fact Witness

Professor Paul B Stephan
Mr Stuart B Gleichenhaus
Professor Stephen E Shay
Mr Andrew Grantham FCA
Professor Justice J H M (Huub) Willems LLM

Expert Witnesses

Respondent

Dr Claudia Annacker
Mr David G Sabel
Mr Lawrence B Friedman
Mr Matthew D Slater
Mr Larry C Work-Dembowski
Dr Enikő Horvath
Ms Laurie Achtouk-Spivak
Mr Lorenzo Melchionda
Ms Ksenia Khanseidova
Ms Aija Lejniece
Ms Sarah Schröder
Mr Sean McGrew
Cleary Gottlieb Steen & Hamilton LLP

Mr Andrey Kondakov

Party Representative

Mr Jesse Stevenson

Trial Graphic Consultant

Professor Anton V Asoskov
Professor Thomas Z Lys
Professor Dr Riemert P J L Tjittes

Expert Witnesses

Tribunal Assistant

Mr Jack L Wass

Registry

Dr Hanno Wehland
Mr Robert James

PCA

Court Reporter

Mr Trevor McGowan

Interpreters

Ms Irina van Erkel
Mr Sergei Mikheyev

25.

The Hearing on Jurisdiction proceeded by way of opening arguments, witness and expert testimony, and closing arguments. At the conclusion of the Hearing on Jurisdiction, the Parties confirmed that they had no further procedural matters to draw to the attention of the Tribunal.⁹

26.

In accordance with the Tribunal’s directions, the Parties exchanged submissions on costs relating to the jurisdiction phase on 5 October 2015 and comments on the other Party’s costs submissions on 19 October 2015.

27.

On 17 May 2016, the Tribunal invited the Parties’ observations on The Hague District Court Judgment in Action Nos C/09/477160 / HA ZA 15-1, C/09/477162 / HA ZA 15-2 and C/09/481619 / HA ZA 15-112, which were duly provided by the Claimant on the same date, and by the Respondent on 23 May 2016. On 26 May 2016, the Tribunal decided to admit The Hague District Court Judgment into the record. It also advised that it would consider the Claimant’s further submissions of 24 May 2016, and permitted the Respondent to provide a reply, which it submitted on 31 May 2016.

28.

On 18 January 2017, the Tribunal issued its Interim Award on Jurisdiction (the Interim Award). The Tribunal decided that:

(1) The Respondent’s provisional application of the Energy Charter Treaty under the terms of Article 45(1) does include its consent to international arbitration under Article 26(3)(a) (by majority).

(2) The Claimant does own an asset constituted by a debt of a company associated with an Economic Activity in the Energy Sector in the Area of the Respondent such that it has made an Investment to which the present dispute with the Respondent relates (by majority).

(3) Citizens or nationals of a third State did not control the Claimant on 11 April 2014 when the Respondent sought to deny the Claimant the advantages of Part III of the Energy Charter Treaty, such that the Respondent was not entitled to invoke the provisions of Article 17(1).

(4) The three objections to jurisdiction and admissibility raised by Respondent in its Notice dated 11 April 2014 that the Tribunal set down for determination in a preliminary phase by Procedural Order No 1 dated 24 April 2014 are therefore dismissed (by majority in respect of objections (1) and (2)).

(5) Any other objections to jurisdiction and admissibility are, pursuant to Procedural Order No 1, joined to the merits.

(6) The stay of proceedings on the merits ordered in Procedural Order No 1 is lifted with effect from 28 days following the communication of this Interim Award on Jurisdiction to the Parties.

(7) The Tribunal shall thereafter fix by procedural order, after consultation with the Parties, a revised timetable for further pleadings and a hearing on the merits.

(8) All costs of and occasioned by the hearing of these objections to jurisdiction shall be reserved.¹⁰

29.

Professor Brigitte Stem issued a dissenting opinion in relation to the first two issues, in which she considered that:

(i) Article 26 of the ECT cannot be introduced in the Russian legal order through an administrative act and, therefore, cannot be provisionally applied on the international level, and therefore the Tribunal has no jurisdiction ratione temporis; and

(ii) The Claimant cannot be considered as having made an autonomous investment and the Tribunal has no jurisdiction ratione materiae to deal with the case.

30.

On 20 February 2017, following the lifting of the stay of the proceeding on the merits pursuant to the Interim Award, the Tribunal wrote to the Parties proposing a procedural calendar for the phase on the merits. By letter of 22 February 2017, the Tribunal wrote further to propose Lausanne, Switzerland, as the venue for the hearing on the merits (the Hearing).

31.

A number of discrete procedural matters arose during the merits phase of the proceedings, which, in the interest of clarity, will be set out seriatim rather than strictly chronologically.

32.

On 25 February 2017, the Respondent wrote to the Tribunal to advise that:

(i) Debevoise & Plimpton LLP had been appointed as counsel for the Respondent in these proceedings, to replace Cleary Gottlieb Steen & Hamilton LLP;

(ii) The Respondent had made an application to set aside the Interim Award (the Set-Aside Application) before the Swiss Federal Tribunal and that the latter had issued a Provisional Measures Order for the stay of the present arbitration proceedings; and

(iii) The Respondent was ready to submit a formal application for the stay of the proceedings should the Tribunal so require.

33.

On 1 March 2017, the Claimant advised that: (i) it did not object to the stay of the proceedings, subject to the Tribunal being permitted during the pendency of the Set-Aside Application proceedings to decide on the venue of the Hearing and the provisional schedule for the phase on the merits; and (ii) that it had no objection to Lausanne as the venue for the Hearing subject to the assurance of safe passage of the Claimant’s witnesses and client representatives.

34.

By letter of 7 March 2017, the Respondent: (i) expressed its agreement with the Claimant’s proposal concerning the stay of the proceedings; (ii) indicated its agreement with Lausanne as the venue for the Hearing; and (iii) submitted several comments with regard to the provisional timetable for the phase on the merits.

35.

On 16 March 2017, following consultation with the Tribunal, the Parties wrote jointly to the Swiss Federal Tribunal, indicating that:

(i) The Claimant consented to the stay of the arbitral proceedings requested by the Respondent; and

(ii) The Parties had agreed that the Tribunal should in the interim be able to rule on the place of the Hearing and the provisional timetable for the procedural phase in the merits, which would only be applicable in the event the Set-Aside Application was rejected.

36.

On 10 August 2017, the Claimant wrote to the Tribunal to inform it that the Set-Aside Application had been dismissed by the Swiss Federal Tribunal as premature, the Interim Award having reserved several of the Respondent’s jurisdictional objections to the merits phase.

37.

On 15 September 2017, the Parties jointly submitted an agreed procedural calendar for the phase on the merits.

38.

By letter of 4 October 2017, the Tribunal confirmed its agreement with the written phase of the procedural calendar proposed by the Parties. Following an exchange of correspondence between 12 and 25 October 2017, the Parties agreed that the Hearing be held in Lausanne, Switzerland, between 1 and 12 July 2019.

39.

On 27 October 2017, the Claimant filed a Memorial on the Merits, together with a Third Witness Statement of Mr Misamore (Misamore 3), Witness Statements of Andrei Illarionov, Steven Theede, Vladimir Dubov (Dubov 1), Rudolf Mkhitaryan (Mkhitaryan 1) and Yuri Schmidt, a Third Expert Report of Professor Stephan (Stephan 3), and an Expert Report of Mr Gleichenhaus and Howard N. Rosen (Gleichenhaus-Rosen).

40.

On 13 November 2017, the Tribunal issued Procedural Order N° 3 (PO N° 3), memorialising the procedural calendar for the phase on the merits as agreed by the Parties.

41.

On 11 July 2018, the Respondent filed a Counter-Memorial on the Merits, together with Witness Statements of Gitas P. Anilionis, Dmitry Gololobov and Yevgeny Rybin, a Third Expert Report of Professor Asoskov (Asoskov 3), a Second Expert Report of Mr Noguera (Noguera 2) and Expert Reports of Andreas Michaelides, Zaitsev Oleg Romanovich, Philip Haberman, Professor Gennady Esakov (Esakov 1), Professor Dr Mark Pieth (Pieth 1), Professor Dr Robert J. Danon (Danon 1), Professor S.P. Kothari, Roman S. Bevzenko and Viktor V Batsiev (Batsiev 1).

42.

Following a joint request by the Parties, by letter of 26 July 2018 the Tribunal confirmed a further amendment to the procedural calendar and noted that 'the written pleadings phase will close on 7 May 2019’, and that '[n]o further slippage in the date for close of written pleadings can be contemplated.'

43.

On 8 January 2019, the Claimant filed a Reply on the Merits, together with a Fourth Witness Statement of Mr Misamore (Misamore 4), Second Witness Statements of Mr Mkhitaryan (Mkhitaryan 2) and Mr Dubov (Dubov 2),¹¹ a Witness Statement of Alexey Smirnov (Smirnov), a fourth Expert Report of Professor Stephan (Stephan 4), a Second Expert Report of Prof Shay (Shay 2) and Expert Reports of Mr Rosen (Rosen) and Dr Vladimir Gladyshev (Gladyshev).

44.

On 5 February 2019, the Respondent wrote concerning Claimant’s compliance with the Tribunal’s directions in the filing of the Reply. By letter of 21 February 2019, the Claimant provided explanations on the matter and confirmed it had completed the filing of its Reply.

45.

On 25 March 2019, the Claimant informed the Tribunal and the Respondent that one of its fact witnesses, Dr Andrei Illarionov, would not appear at the Hearing and that his witness statement dated 24 October 2017 was withdrawn.

46.

On 6 April 2019, the Respondent indicated that it objected to the withdrawal of Dr Illarionov’s evidence from the proceedings and requested; (i) that the withdrawal of Dr Illarionov’s evidence be rejected; (ii) that the Tribunal order the Claimant to confirm that Dr Illarionov would be available at the Hearing for cross-examination; and alternatively, (iii) that the Tribunal order the Claimant to procure Dr Illarionov to appear at the Hearing for testimony and cross-examination.

47.

On 15 April 2019, the Respondent submitted an application for amendment of the procedural timetable, requesting, in particular; (i) the postponement of the Hearing to a time to be determined; (ii) an extension of the time for the filing of its Rejoinder; and (iii) further consequential relief and amendments to the procedural timetable. In its application, the Respondent alleged, inter alia, that the Claimant had been 'harassing’ one of Respondent’s witnesses, Mr Gololobov, referring to his inclusion on the 'Free Russia’ website.¹²

48.

On 16 April 2019, the Tribunal directed the Claimant to file its written response to the Respondent’s application by 23 April 2019. On 19 April 2019, the Tribunal fixed the date of Saturday 27 April 2019 for a procedural hearing by telephone conference on the Respondent’s application.

49.

On 23 April 2019, the Claimant submitted its response, in which it requested that the Respondent’s application for amendment of the procedural timetable be dismissed.

50.

On 27 April 2019, the Tribunal held a procedural hearing by telephone conference to determine the Respondent’s application for postponement of the Hearing.

51.

On 30 April 2019, the Tribunal issued Procedural Order N° 10 (PO N° 10), in which it: (i) decided that all references to Dr Illarionov’s witness statements are expunged from the record in this arbitration; (ii) ordered the Claimant to file and re-serve amended copies of its Memorial and Reply omitting such references; (iii) granted the Respondent a one-week extension for the service of its rejoinder submissions; (iv) extended the date for notification of witnesses to be cross-examined at the Hearing; (v) otherwise dismissed the Respondent’s application; and (vi) decided that the reasonable costs of and occasioned by the Respondent’s application are payable by the Respondent in any event upon the conclusion of the proceedings. In the course of its reasoning in PO N° 10, the Tribunal found 'no evidence on the record that might support the proposition that the Claimant or its officers or agents are behind the inclusion of Dr Gololobov on the "Free Russia" Website or that his inclusion on that Website is in any way connected with the present case.’

52.

On 10 May 2019, the Claimant wrote to the Tribunal, advising that due to safe passage concerns regarding the Claimant’s witnesses, the Parties jointly proposed that the Hearing be moved to London, United Kingdom.

53.

On 14 May 2019, the Respondent filed its Rejoinder on the Merits, together with Second Expert Reports of Professor Esakov (Esakov 2), Professor Pieth (Pieth 2) and Professor Danon (Danon 2).

54.

On 25 May 2019, a procedural hearing by telephone conference was held to discuss inter aha the Parties’ joint request to transfer the venue for the Hearing. On 27 May 2019, the Tribunal wrote to the Parties to advise that it acceded to their request to transfer the venue for the Hearing from Lausanne to London.

55.

On 28 May 2019, the Parties gave notice of the persons whose witness statements and expert reports had been served by the other Party that were required to attend the Hearing to give oral evidence. In particular, the Claimant notified inter alia that it required Mr Gololobov’s attendance at the Hearing to be cross-examined.

56.

On 3 June 2019, and in accordance with PO N° 10, the Claimant submitted amended copies of its Memorial and Reply omitting references to Dr Illarionov’s witness statements.

57.

On 5 June 2019, the Claimant wrote to the Tribunal regarding 'new submissions and evidence’ included in the Rejoinder. It requested that the Tribunal grant it two additional hours at the Hearing (taken from the Respondent’s time allocation) to allow its counsel and its fact and expert witnesses to address such submissions and evidence. The Respondent objected to this proposal.

58.

On 7 June 2019, the Respondent wrote to advise the Tribunal and the Claimant that Mr Gololobov would not be attending the Hearing. It alleged that this was as a result of 'harassment’ from individuals who stand behind or are otherwise closely associated with the Yukos Group. It invited the Tribunal to receive and consider Mr Gololobov’s written evidence and afford it the weight it deemed appropriate.

59.

On 11 June 2019, the Claimant replied to the Respondent’s letter, alleging that the harassment allegation was a 'smokescreen’ for Mr Gololobov’s absence. It requested an order that Mr Gololobov’s statement should be disregarded.

60.

On 14 June 2019, the Presiding Arbitrator held a pre-hearing telephone conference with the Parties to discuss, inter alia, the schedule for the Hearing. The Presiding Arbitrator, on behalf of the Tribunal, declined the Claimant’s application for two additional hours of Hearing time, in view of the principle of equality of the Parties. He noted however that the principle of equality does not prescribe equal Hearing time in a literal sense, and that the Tribunal would ensure that the Claimant had a proper opportunity to examine its witnesses on the new submissions and evidence as the principle of fairness and equality require.

61.

Further to the discussion at the pre-hearing telephone conference, on 24 June 2019 the Parties submitted an agreed indicative schedule for the Hearing.

62.

On 26 June 2019, and further to the Tribunal’s proposal, the Parties submitted an agreed Dramatis Personae and Joint Chronology of Events.

63.

Also on 26 June 2019, the Tribunal issued Procedural Order N° 11 (PO N° 11) on the admissibility of the statement of Mr Gololobov. It found no evidence to support the Respondent’s allegation that he had been harassed by or on behalf of the Claimant. It held that basic principles of the equality of the parties and the right of a party to test the evidence presented by the opposing party required that, in default (without a valid reason) of the witness’s attendance for cross-examination when requested, his statement is inadmissible and must be excluded from the record.

64.

On 27 June 2019, and in accordance with PO N° 11, the Respondent submitted amended copies of its Counter-Memorial and Rejoinder omitting references to Mr Gololobov’s witness statement.

65.

On 15 January 2018, the Claimant’s counsel wrote to advise that the Claimant had 'changed its place of domicile from Luxembourg to the BVI, and is now known as Yukos Capital Limited’ (the Corporate Reorganisation). It did not provide the date of the change in domicile in this communication.

66.

The Parties exchanged correspondence and submissions between 17 January 2018 and 7 May 2018 with regard to the Corporate Reorganisation. In sum, the Respondent made two applications concerning: (i) production of documents and provision of explanations about the circumstances of the Corporate Reorganisation; and (ii) security for costs. The Claimant provided certain information and documents in response and otherwise objected to both applications.

67.

On 18 May 2018, the Tribunal issued Procedural Order N° 4 (PO No 4) ruling on the Respondent’s applications. The Tribunal ordered that:

(i) The case intituling in these proceedings should be amended so that the Claimant’s name shall appear as 'Yukos Capital Ltd (formerly Yukos Capital S.à r.l.)’;

(ii) The Claimant was to provide the reasons for its Corporate Reorganisation and for lack of disclosure thereof at the time it took effect;

(iii) The Respondent should pursue any further request for production of documents on this matter alongside the document production requests on the merits as provided in PO N° 3; and

(iv) The Respondent’s application for security for costs was adjourned pending the completion of the steps set out in (b) and (c) above.

68.

By its letter of 31 May 2018 and separate Statement of the same date by David A Godfrey, director of Yukos Capital Ltd (formerly Yukos Capital S.à r.l), the Claimant gave an explanation for its reorganisation.

69.

Following an exchange between the Parties regarding an adjustment to the procedural calendar, the Tribunal confirmed on 6 June 2018 that the procedural calendar had been adjusted in accordance with the Parties’ agreement.

70.

On 6 June 2018, the Respondent submitted comments on the Claimant’s letter and the Statement of Mr Godfrey of 31 May 2018, and requested that the Tribunal order the Claimant to provide an additional statement by Mr Godfrey. By letter of 15 June 2018, the Claimant replied to these comments and objected to the Respondent’s request.

71.

On 28 June 2018, the Tribunal wrote to the Parties rejecting the Respondent’s request that a further statement be filed by Mr Godfrey.

72.

Following the exchange of the first round of pleadings, the Parties made a simultaneous exchange of requests for the production of documents as provided by PO N° 1. Following the exchange of objections and responses, a number of requests remained outstanding. The Parties submitted Redfern Schedules and introductory comments on 31 August 2018, and requested that the Tribunal make an order on those outstanding requests.

73.

On 21 September 2018, the Respondent wrote to the Tribunal with regard to 'an issue that has arisen between the Parties regarding their obligations under [PO N° 1] with respect to documents relied upon by expert witnesses’ and requesting the Tribunal to clarify the scope of such obligations. By letter of 28 September 2018, the Claimant provided its response to the Respondent’s letter.

74.

On 28 September 2018, the Tribunal issued its decision on the Parties’ requests for production of documents in Procedural Order N° 5 (PO N° 5).

75.

Pursuant to PO N° 5 and by further agreement of the Parties, on 3 December 2018 the Parties respectively submitted signed statements summarising the steps taken to comply with PO N° 5.¹³

76.

Following inter parles correspondence between December 2018 and January 2019, on 5 February 2019 the Respondent applied to the Tribunal for relief, alleging that the Claimant had failed to comply with its document production obligations. Further submissions were made in writing on 1 March 2019, 7 March 2019, 13 March 2019, 19 March 2019 and 5 April 2019. Oral submissions were also made at a procedural hearing convened by telephone conference in relation to a separate application on 27 April 2019.

77.

On 30 April 2019, the Tribunal issued its decision on the Parties’ further requests for production of documents in Procedural Order N° 9 (PO N° 9).

78.

On 11 July 2018, the Respondent filed a Motion to Strike with its Counter-Memorial requesting that the Tribunal strike from the record three sets of arbitral awards on which the Claimant sought to rely, on the ground that these awards had been set aside by the competent court at the place of arbitration in those cases. The three sets of awards were:

(i) Hulley Enterprises Ltd (Cyprus) v Russian Federation, Yukos Universal Ltd (Isle of Man) v Russian Federation, and Veteran Petroleum Ltd (Cyprus) v Russian Federation (the Hulley Final Awards);¹⁴

(ii) RosInvestCo UK Ltd v Russian Federation;¹⁵ and

(iii) Quasar de Valores et al v Russian Federation.¹⁶

79.

On 17 August 2018, the Claimant submitted a Response on the Motion to Strike.

80.

In accordance with the leave granted by the Tribunal, on 12 September 2018 the Respondent filed its Reply on the Motion to Strike. On 19 September 2018, the Claimant submitted its Rejoinder on the Motion to Strike.

81.

On 1 November 2018, the Tribunal issued Procedural Order N° 6 (PO N° 6) on the Respondent’s Motion to Strike, inter alia:

(i) Holding that the Parties are at liberty to rely on any of the five contested awards, as well as on related decisions of national courts, as legal authorities, and that the Tribunal will determine the weight to be given to such legal authorities;

(ii) Noting the Claimant’s statement that it does not rely on the Awards as evidence of fact, and that each Party shall bear the burden of proving the facts relied upon to support its pleadings; and

(iii) Joining the Claimant’s plea of collateral estoppel to the merits.

82.

At the Hearing on the Merits, the Claimant confirmed that it did not pursue its argument that the Respondent was precluded from contesting the findings in the Hulley, Rosinvest and Quasar de Valores Awards as to the legal consequences of the facts as found by those Tribunals on the grounds of collateral estoppel.¹⁷

83.

By letters dated 21 and 28 September 2018, the Parties sought the Tribunal’s directions concerning exhibits to the Respondent’s experts’ reports, and the interpretation of the requirement in [8.2](f) of PO N° 1 that expert reports contain copies of all documents relied upon or citations to such documents. Guidance was sought in relation to, inter alia, whether this requirement applied to documents provided to an expert as background but on which the expert had not placed specific reliance.

84.

On 10 December 2018, the Tribunal issued Procedural Order N° 7 (PO N° 7), in which it ordered inter alia that the Parties are not obliged to place on the record documents that merely formed background to the experts’ reports and which the experts did not cite or rely upon in their analysis, and that the Parties are entitled to call for copies of any background documents that were provided to the expert but not exhibited to the corresponding report.

85.

On 14 December 2018 the Respondent wrote to notify the Tribunal pursuant to PO N° 4 of its intention to pursue its application for security for costs.¹⁸ Accordingly, on 21 December 2018 the Respondent filed a revised application for security for costs.

86.

Pursuant to the directions of the Tribunal set forth in its letter of 17 January 2019, the Parties filed the following submissions on the Respondent’s application for security for costs:

(i) The Claimant’s response to the Respondent’s application for security for costs, dated 1 February 2019 and supplemented with the Claimant’s letter of 5 February 2019;

(ii) The Respondent’s comments on the Claimant’s response, dated 8 February 2019; and

(iii) The Claimant’s response to the Respondent’s comments, dated 15 February 2019.

87.

On 1 April 2019, the Tribunal issued Procedural Order N° 8 (PO N° 8), dismissing the Respondent’s application for security for costs.

88.

The Hearing was held over ten days between 1 and 12 July 2019 (6 and 7 July being rest days) at the International Dispute Resolution Centre in London. The following persons attended the Hearing:

Tribunal

Professor Campbell McLachlan QC (Chairman)
Mr J. William Rowley QC
Professor Brigitte Stem

Claimant

Mr Cyrus Benson
Ms Penny Madden QC
Ms Ceyda Knoebel
Mr Piers Plumptre
Ms Sophy Helgesen
Ms Sasha Kobyasheva
Mr Theo Tyrrell
Ms Lindsey Schmidt
Mr Paul Evans
Ms Grace Webster
Ms Olga Ivleva
Mr Michael Stewart (via videoconference from Dubai) Gibson, Dunn & Crutcher LLP
Mr David Godfrey (also as fact witness)
Ms Natalia Kantovich

Party Representatives

Ms Kathleen Gregor (expert)
Ms Anastasia Kantovich (translator)
Mr Maarten Drop (counsel to Mr Godfrey)

Other Support Staff

Respondent

Lord Peter Goldsmith QC
Ms Samantha J Rowe
Ms Aimee-Jane Lee
Mr Conway Blake
Ms Ceri Chave
Mr Maxim Osadchiy
Ms Monika Hlavkova
Ms Sonja Sreckovic
Ms Svetlana Portman
Ms Janine Godbehere
Mr Simon Alton
Ms Prasheela Vara
Mr Shaun Brennan
Mr Tom Cornell (via videoconference from Dubai) Debevoise & Plimpton LLP
Mr Anton Garmoza
Mr Andrey Kondakov

Party Representatives

Mr Steven Theede
Mr Bruce K Misamore
Mr Alexey Smirnov
Mr Vladimir Matveevich Dubov
Mr Rudolf Mkhitaryan

Fact Witnesses

Professor Stephen E Shay
Professor Paul B Stephan
Dr Vladimir Gladyshev
Mr Stuart B Gleichenhaus
Mr Howard N Rosen

Expert Witnesses

Mr Tom Almeida

Other Support Staff

Mr Gitas Polivo Anilionis

Fact Witness

Professor Robert J Danon
Professor Danil Vinnitskiy
Mr Andreas Michaelides
Mr Viktor Valentinovich Batsiev
Professor Gennady Aleksandrovich Esakov
Professor Roman Sergeevich Bevzenko
Professor Oleg Romanovich Zaitsev (via videoconference from Dubai)
Mr Valery Knyazev

Expert Witnesses

Tribunal Assistant

Mr Jack L Wass

Registry

Ms Helen Brown

PCA

Court Reporter

Mr David A Kasdan

Interpreters

Ms Irina van Erkel
Ms Tanya Gesse
Mr Yuri Somov

89.

The Hearing proceeded by way of opening arguments, witness and expert testimony, and closing arguments. On behalf of the Claimant, oral arguments were presented by Mr Cyrus Benson and Ms Penny Madden QC. On behalf of the Respondent, oral arguments were presented by Lord Peter Goldsmith QC, Ms Samantha J Rowe, Ms Aimee-Jane Lee, Mr Conway Blake, Ms Ceri Chave, Mr Maxim Osadchiy and Ms Monika Hlavkova.

90.

On 8 July 2019, the sixth day of the Hearing, the Respondent advised that one of its experts, Professor Oleg Zaitsev, would not be able to travel to London in time to give testimony, due to delays in the processing of his visa application. Following discussions between the Tribunal and the Parties, Professor Zaitsev eventually testified on 10 July 2019 from the offices of the Claimant’s counsel in Dubai, accompanied by a representative of each Party’s counsel at the same venue.

91.

At the conclusion of the Hearing, the Tribunal provided instructions regarding the procedure and schedule for: (i) the review and correction of the Hearing transcript; and (ii) the filing of submissions on costs. Following the discussion of these issues, the Parties confirmed that they had no further procedural matters to draw to the attention of the Tribunal.¹⁹

92.

On 15 August 2019, the Parties submitted their agreed amendments to the Hearing transcript, as well as their respective positions with regard to disputed amendments.

93.

The Respondent filed its Submission on Allocation of Costs on 27 September 2019 (Respondent’s Costs Submission), and the Claimant filed its Cost Submission for Merits Phase on 29 September 2019 (Claimant’s Costs Submission).

94.

On 16 October 2019, the Parties filed their observations on the other Party’s cost submission (Claimant’s Costs Observations and Respondent’s Costs Observations, respectively).

95.

On 23 October 2019, the Tribunal issued its decision concerning the Parties’ disputed amendments to the Hearing transcript, which were then incorporated into the final Hearing transcript along with the Parties’ agreed amendments.

96.

In this section of the Award, the Tribunal briefly summarises the factual background to the present dispute. The Tribunal returns to a more detailed analysis of the facts where necessary in the context of its assessment of the Parties’ contentions on jurisdiction, liability and compensation.

97.

Yukos Capital was incorporated in Luxembourg on 31 January 2003 as a group finance company to serve the needs of the wider Yukos group of companies (the Yukos Group).²⁰ At its formation, Yukos Capital’s direct parent was Yukos Finance BV (Yukos Finance), a Dutch company owned by Yukos Oil. In 2005, Yukos Finance transferred ownership of Yukos Capital to its subsidiary, Yukos International UK BV (Yukos International), another Dutch company. Yukos Finance then delivered its shares in Yukos International (in exchange for depository receipts) to a Dutch foundation, Stichting Administratiekantoor Yukos International (the Stichting). Accordingly, the Stichting wholly owns Yukos International and, through it, Yukos Capital.²¹

98.

On 4 August 2016, Yukos Capital S.à r.l. merged with Miwok Wealth PIC Ltd (Miwok), an entity incorporated in the BVI in 2014 also owned by the Stichting.²² The Articles of Merger provided that Yukos Capital S.à r.l. would be the merging company, and Miwok the surviving company. On 1 September 2016, Miwok changed its name to Yukos Capital Ltd, and on 8 February 2017 Yukos Capital S.à r.l. was struck off the Luxembourg company register.²³ This Corporate Reorganisation is relevant to the Respondent’s objection to jurisdiction with regard to the Claimant’s status as a protected investor under the ECT, and is discussed in that context below.²⁴

99.

Yukos was privatised in the 1990s, and by the time of the events with which this proceeding is concerned was one of the largest oil companies in Russia.

100.

Yukos Oil itself (i.e. Yukos Oil Company OJSC) was a holding company that held interests in a number of onshore (Russian-incorporated) and offshore (foreign-incorporated) companies.²⁵

101.

Among those subsidiaries, Yukos owned three primary oil production companies (the Production Subsidiaries): Yuganskneftegaz (YNG), Samaraneflegaz (SN) and Tomskneft (TN).²⁶ Yukos also owned a number of refining and trading companies, both onshore (Russian-incorporated) and offshore (foreign-incorporated). These trading companies purchased oil and refined petroleum products from Yukos production and refining companies, and sold them to the market or to other Yukos subsidiaries.²⁷

102.

One of the principal offshore structures established by Yukos was known as the Armenian Branch, because the principal holding company under Yukos Oil itself for the Group companies in question, Yukos CIS Investments (Yukos CIS), was incorporated in Armenia. It consisted of the following elements:²⁸

(i) Yukos CIS was incorporated in Armenia as a fully-owned subsidiary of Yukos Oil;

(ii) Its fully-owned subsidiary was Yukos Hydrocarbons Ltd (incorporated in the BVI) (Yukos Hydrocarbons);

(iii) Its fully-owned subsidiary was Brittany Assets Ltd (incorporated in the BVI) (Brittany);

(iv) Brittany owned 10% of the share capital in Brill Management Ltd (incorporated in the BVI) (Brill), the remaining 90% being owned by a trust known as the 'Stephen Trust’;

(v) Brill owned a number of other subsidiaries. Of most relevance for the present dispute are two parallel chains of companies that terminated in Russian trading companies;

i. Brill owned 10% of James Holding Venture Corp (incorporated in the BVI) (JHV),²⁹ which in turn fully owned Dunsley Ltd (incorporated in Cyprus) (Dunsley), which in turn fully owned OOO Ratibor (Ratibor), one of the Yukos trading subsidiaries incorporated in Russia;

ii. Brill fully owned Moonstone Investments Ltd (incorporated in the BVI) (Moonstone), which in turn fully owned Nassaubridge Management Ltd (incorporated in Cyprus) (Nassaubridge) which fully owned OOO Fargoil (Fargoil), another Yukos trading subsidiary incorporated in Russia.

103.

Both Ratibor and Fargoil were incorporated in Mordovia, a low-tax region (or LTR) established under Russian law that offered preferential tax arrangements to certain investors.

104.

The Armenian Branch is depicted on the following diagram:³⁰

105.

As that diagram shows, Yukos Oil also owned a separate chain of companies in Cyprus: Yukos UK Ltd, then Hedgerow Ltd (Hedgerow), then Rospan Overseas Ltd (Rospan).

106.

The claims in this arbitration concern the treatment of two loans advanced by Yukos Capital to Yukos Oil under agreements dated 2 December 2003 (the December 2003 Loan)³¹ and 19 August 2004 (the August 2004 Loan).³²

107.

Each of the Loans was advanced with funds that were loaned to Yukos Capital by another company in the Yukos Group: the December 2003 Loan was backed by a loan from Brittany in the sum of RUB 80,000,000,000 (the Brittany Loan),³³ and the August 2004 Loan was backed by a USD 355,000,000 loan from Hedgerow (the Hedgerow Loan).³⁴

108.

Each of the Loans was back-to-back and non-recourse: the funds were advanced to Yukos Capital for the express purpose of Yukos Capital advancing those funds to Yukos Oil, and Yukos Capital was only liable to repay its lender when it was repaid by its borrower. The terms and effects of the Loans were considered in detail by the Tribunal in its Interim Award.³⁵

109.

The December 2003 Loan was drawn down progressively between 2 December 2003 and 28 June 2004, and the August 2004 Loan was drawn down on the day it was executed.³⁶

110.

The Loans were among 26 loans that Yukos Capital made to Yukos Oil or its subsidiaries between 2 June 2003 and 19 August 2004. In each case these loans were backed by loans from another Yukos entity, in all but two cases being Brittany.³⁷

111.

As to the source of the funds:

(i) It is common ground that the December 2003 Loan was funded primarily³⁸ from profits of oil trading activities, in particular that had accumulated in Russian subsidiaries (Ratibor and Fargoil) and passed by way of dividends to their Cyprus parents (Dunsley and Nassaubridge), to their parents in the BVI (JHV and Moonstone), then to Brill and finally to Brittany.

(ii) At that point the Parties differ: the Claimant’s evidence is that the loans were also sourced from fixed income debt investments and offshore investments;³⁹ the Respondent submits that the entirety of the loans were derived from Fargoil and Ratibor via Brill (described with Brittany as a 'cash accumulation center’),⁴⁰ and notes that there was no documentary support for the Claimant’s testimony.⁴¹

112.

As to the application of the funds:

(i) It is common ground that part (USD 0.9 billion) of the December 2003 Loan was used to fund part of a USD 2 billion dividend issued by Yukos Oil (the so-called giga-dividend).⁴² The dividend was declared on 28 November 2003⁴³ and the December 2003 Loan was approved by Yukos Oil shortly thereafter.⁴⁴

(ii) Thus Yukos Oil’s bank statements record a payment of RUB 30.4 billion (USD 1 billion) on 5 December 2003, which the Respondent says represented the share of the dividend due to Hulley, one of the shareholders in Yukos Oil. The same day, Yukos Capital transferred RUB 26.0 billion (USD 0.9 billion) to Yukos Oil under the December 2003 Loan.

(iii) The Parties agree that part of the funds advanced under the December 2003 Loan could also have been used to redeem promissory notes. Beyond this, the record does not confirm how the rest of the December 2003 Loan was applied or how the rest of the giga-dividend was financed.⁴⁵

(iv) The Claimant says that the giga-dividend was required to implement the merger with Sibneft that had been completed on 3 October 2003, and in particular to achieve a specified debt-equity ratio.⁴⁶ The Respondent says that this is a pretence and the giga-dividend was an 'asset-stripping tool’.⁴⁷ The Tribunal returns to this issue below.⁴⁸

113.

It is common ground that the Hedgerow Loan was funded by the sale of Hedgerow’s 56% interest in its subsidiary Rospan, and that the August 2004 Loan was used by Yukos to pay part of the first tax re-assessment levied by the Respondent against Yukos Oil in the circumstances described below.⁴⁹

114.

On 25 October 2003, Mr Mikhail Khodorkovsky, the CEO of Yukos Oil, was arrested on charges of fraud, embezzlement and tax evasion.⁵⁰ On 2 July 2003, Mr Platon Lebedev (a close associate of Mr Khodorkovsky) had been arrested on similar charges.⁵¹ Both were ultimately convicted and sentenced to imprisonment.⁵²

115.

The first tax audit. Between October 2002 and March 2003, the Russian tax authorities conducted a Field Tax Audit of Yukos Oil concerning the 2000 and 2001 tax years. The resulting report was delivered to Yukos Oil on 28 April 2003.⁵³ Following the submission of certain objections by Yukos Oil, the Inspectorate for the city of Nefteyugansk issued a decision finding Yukos Oil liable for certain limited tax offences.⁵⁴ requiring a total payment of RUB 8,936,233.22 by Yukos Oil.⁵⁵ Subsequently, by certificates of 19 September 2003, 23 October 2003 and 17 November 2003, Russian tax authorities declared that Yukos Oil had settled its tax liabilities.⁵⁶

116.

The 2000 Tax Assessment. In early December 2003, the Russian tax authorities conducted another Field Tax Audit of Yukos Oil concerning only the 2000 tax year. A report was issued on 29 December 2003, finding that Yukos Oil had committed violations of tax law with regard to value-added tax (VAT), Corporation Tax, Motorway User Tax, Fuel and Lubricant Sales Tax, Corporate Property Tax and Housing Stock and Social Amenities Maintenance Tax.⁵⁷ Following the submission of certain objections by Yukos Oil, the Deputy Minister for Taxes and Duties of Russia issued a resolution on 14 April 2004 whereby it held Yukos Oil liable for intentional non-payment of tax (the 2000 Tax Assessment).⁵⁸ The 2000 Tax Assessment required a total payment of RUB 99,375,538,234.40,⁵⁹ which in turn was comprised of (i) RUB 47,989,241,953 in indebted taxes, (ii) RUB 19,195,696,780 in fines and (iii) RUB 32,190,599,501.40 in default interest.⁶⁰ A resolution of the Ninth Arbitrazh Court of Appeal released on 23 November 2004 confirmed the 2000 Tax Assessment.⁶¹

117.

In brief, the 2000 Tax Assessment determined that the 'Yukos Tax Arrangement’—and in particular its onshore structure—was 'an illegal tax evasion scheme’ using 'fake organizations’ registered in low-tax regions and involved in the 'oil and after-product movement chain’.⁶² These corporations retained the revenue resulting from the sale of oil and refined products to utilise certain tax preferences.⁶³ According to the December 2003 audit, Yukos Oil was the 'true owner of the oil and after-products’ and the entity in control of their purchase, transfer and sale.⁶⁴ Consequently, the 2000 Tax Assessment concluded that Yukos Oil, having acted in bad faith, was 'the ultimate recipient of the economic benefit’ and thus responsible for the entirety of the unlawfully obtained tax benefits.⁶⁵

118.

Between 2004 and 2006, the Russian tax authorities issued four additional decisions relating to Yukos Oil concerning the 2001-2004 tax years (together with the 2000 Tax Assessment, the Tax Assessments). The underlying reasoning and practical procedure was the same in the material respects for all five Tax Assessments.

119.

The 2001 Tax Assessment. Between 23 March and 4 June 2004, the Russian tax authorities conducted an audit of Yukos Oil for the 2001 tax year.⁶⁶ In accordance with the audit report released on 30 June 2004, the Tax Ministry issued a decision holding Yukos Oil liable for several tax offences on 2 September 2004 (the 2001 Tax Assessment).⁶⁷ On the same date, two payment demands were issued requesting that Yukos Oil pay RUB 79,279,641,154 in indebted taxes⁶⁸ and RUB 40,607,549.520 in tax penalties.⁶⁹ The 2001 Tax Assessment was upheld by the Federal Arbitrazh Court.⁷⁰

120.

The 2002 Tax Assessment. Between 9 August and 25 October 2004, the Russian tax authorities conducted an audit of Yukos Oil for the 2002 tax year.⁷¹ In accordance with the audit report released on 29 October 2004, the Tax Ministry issued a decision holding Yukos Oil liable for several tax offences on 16 November 2004 (the 2002 Tax Assessment).⁷² On the same date, two payment demands were issued requesting that Yukos Oil pay, respectively, RUB 121,771,662,840.58 in tax arrears and interest⁷³ and RUB 72,040,907,796 in tax penalties.⁷⁴ The payment, totalling approximately USD 6.7 billion,⁷⁵ was due on 17 November 2004. Yukos Oil’s challenges to the lawfulness and collection of the 2002 Tax Assessment were substantially dismissed.⁷⁶

121.

The 2003 Tax Assessment. Between 28 October and 19 November 2004, the Russian tax authorities conducted an audit of Yukos Oil for the 2003 tax year.⁷⁷ In accordance with the audit report released on 19 November 2004, the Tax Ministry issued a decision holding Yukos Oil liable for several tax offences on 6 December 2004 (the 2003 Tax Assessment).⁷⁸ On the same date, two payment demands were issued requesting that Yukos Oil pay, respectively, RUB 101,464,118,509.66 in tax arrears and interest⁷⁹ and RUB 68,939,326,976.40 in tax penalties.⁸⁰ The payment, totalling approximately USD 6 billion,⁸¹ was due on the following day 7 December 2004. Again the 2003 Tax Assessment was upheld apart from a small portion of the reassessed tax liabilities.⁸²

122.

The 2004 Tax Assessment. Between 4 August and 26 December 2005, the Russian tax authorities conducted an audit of Yukos Oil for the 2004 tax year.⁸³ In accordance with the audit report released on 27 December 2005, the Tax Ministry issued a decision holding Yukos Oil liable for several tax offences on 17 March 2006 (the 2004 Tax Assessment).⁸⁴ This decision was ratified by ruling of the Moscow Arbitrazh Court of 21 June 2006, delivered within the context of the Yukos Oil bankruptcy proceedings, concerning tax arrears up to RUB 66,391,719,284⁸⁵ and, at the second instance, by a resolution of the Ninth Arbitrazh Court of Appeal of 18 August 2006 concerning fines imposed in the amount of RUB 42,036,873,518.⁸⁶ The lawfulness of the penalty fines was eventually confirmed, following a challenge by Yukos Oil to the Tax Ministry’s decision, by the Moscow Arbitrazh Court on 4 October 2006.⁸⁷ In total, and as confirmed by the Russian courts, the 2004 Tax Assessment provided that approximately USD 3.9 billion be paid by Yukos Oil.⁸⁸

123.

As a result of the Tax Assessments, total liabilities of approximately RUB 692 billion (equivalent to approximately USD 24 billion)⁸⁹ were imposed on Yukos Oil. This section first summarises the proceedings conducted by the Russian authorities to enforce the Tax Assessments, and then focuses on the enforcement measures concerning YNG.

124.

The 2000 Tax Assessment. Simultaneously with the issuance of the 2000 Tax Assessment on 14 April 2004, the Tax Ministry demanded payment by 16 April 2004.⁹⁰ Also on that date, the Tax Ministry filed a claim before the Moscow Arbitrazh Court to enforce the payment demands, as well as a separate application for remedial measures to prevent Yukos Oil from alienating or encumbering any of its assets.⁹¹ The application for interim injunction was accepted on 15 April 2004 and, on the following day, the enforcement proceedings were formally initiated.⁹²

125.

On 26 May 2004, the Tax Ministry’s collection claim was upheld by the Moscow Arbitrazh Court.⁹³ At the hearing, which was held on 21 May 2004, Yukos Oil complained of an allegedly untimely filing by the Tax Ministry of thousands of supporting documents in various languages.⁹⁴ Yukos Oil also sought to join the government of one of the low-tax regions involved in the dispute as a third party to the proceedings.⁹⁵ These motions were rejected.

126.

The effect of the assessment was temporarily suspended pending Yukos Oil’s challenge to the Tax Assessments,⁹⁶ but the judge who issued this ruling was later challenged and replaced,⁹⁷ leading to the annulment of the suspension decision on 23 June 2004.⁹⁸

127.

Between 30 June 2004 and 14 July 2004, Russian authorities issued several orders to seize Yukos Oil’s property. These orders involved, inter alia, the following:

(i) Freezing of Yukos Oil’s accounts in 16 banks;⁹⁹

(ii) Restriction of Yukos Oil’s rights with respect to its securities;¹⁰⁰

(iii) An enforcement fee of 7% of the amount to be collected under the 2000 Tax Assessment (i.e., RUB 6,848,291,175);¹⁰¹

(iv) Seizure of Yukos Oil’s 14.5% stake in Sibneft;¹⁰² and

(v) Seizure of Yukos Oil’s shares in its largest production subsidiary YNG.¹⁰³

128.

On 12 August 2004, the Moscow Arbitrazh Court denied Yukos Oil’s request for the collection claim to be executed by instalments.¹⁰⁴ On 23 August 2004, the decision to invalidate the seizure of YNG shares was reversed by the Ninth Arbitrazh Court of Appeal, concluding that these shares could indeed be prioritised.¹⁰⁵

129.

Between July and November 2004, Yukos Oil attempted to reach a settlement with the Respondent through the Right Honourable Jean Chretien PC OM CC QC, former Prime Minister of Canada. On 6 July 2004, Yukos Oil offered a global settlement of USD 8 billion for its tax liabilities concerning the years 2000 to 2003.¹⁰⁶ The amount was proposed to be paid in three instalments in 2004, 2005 and 2006, providing Yukos Oil’s 35% stake in Sibneft as security.¹⁰⁷ Mr Chretien wrote again to Russian Prime Minister Fradkov and to President Putin several times, but received no formal response.¹⁰⁸

130.

The enforcement proceedings for the remaining Tax Assessments followed a similar sequence and were eventually conducted jointly. The following paragraphs overview the most relevant aspects of these proceedings.

131.

The 2001 Tax Assessment. The due date for the payment demands pertaining to the 2001 Tax Assessment was 4 September 2004. On 6 September 2004, the Tax Ministry ordered the collection of the amounts corresponding to tax arrears and interest (over RUB 79 billion) from Yukos Oil’s bank accounts.¹⁰⁹ On 9 September 2004, the enforcement proceedings were initiated and immediately joined to those of the 2000 Tax Assessment.¹¹⁰ The bailiff allowed for voluntary execution by Yukos Oil within five days, following which (and absent good reasons for non-fulfilment) coercive measures could be adopted, including the 7% enforcement fee.

132.

On 16 September 2004, Yukos Oil filed a petition for voluntary enforcement requesting that its shares in Sibneft and other subsidiaries not involved in production activities be prioritised.¹¹¹ The bailiffs did not respond to this request.¹¹² Yukos Oil’s challenge against a first instance judge and its application to join certain trading shells in Russian low-tax regions (LTR Subsidiaries) as third parties to the dispute were dismissed.¹¹³

133.

The 2002 Tax Assessment. The due date for the payment demands pertaining to the 2002 Tax Assessment was 17 November 2004. On 18 November 2004, the Tax Ministry ordered the collection of the amounts corresponding to tax arrears and interest (i.e., over RUB 121 billion) from Yukos Oil’s assets.¹¹⁴ On the same day, the enforcement proceedings were initiated and immediately joined to those of the 2000 and 2001 Tax Assessments.¹¹⁵ Yukos Oil filed another petition for voluntary enforcement on 25 November 2004, but no response was provided by the bailiffs.¹¹⁶

134.

As in previous proceedings, Yukos Oil did not succeed in recusing the first-instance judge or in joining LTR Subsidiaries as co-respondents.¹¹⁷

135.

The 2003 Tax Assessment. The due date for the payment demands pertaining to the 2003 Tax Assessment was 7 December 2004. On 8 December 2004, the Tax Ministry ordered the collection of the amounts corresponding to tax arrears and interest (i.e., over RUB 101 billion) from Yukos Oil’s assets.¹¹⁸ On the following day, the enforcement proceedings were initiated and immediately joined to those of the 2000, 2001 and 2002 Tax Assessments.¹¹⁹ Yukos Oil again filed an unsuccessful petition for voluntary enforcement on 16 December 2004, requesting that the 7% enforcement fee not be collected.¹²⁰

136.

On 17 December 2004, the Bailiffs Department notified tax authorities on the status of the enforcement proceedings.¹²¹ In sum, Yukos Oil was acknowledged to have voluntarily or coercively paid RUB 117,112,769,476.26 (approximately USD 4.21 billion),¹²² while a total of RUB 344,222,156,424.22 remained to be collected under the enforcement proceedings for the 2000-2003 Tax Assessments.

137.

The 2004 Tax Assessment. There are no formal payment demands on the record pertaining to the 2004 Tax Assessment.¹²³ However, the Russian courts permitted the inclusion of the claims of the Russian Federal Tax Service (the Federal Tax Service) in Yukos Oil’s Register of Creditors’ Claims (the Register of Creditors), recognising liabilities of around RUB 66 billion in tax arrears and interest and RUB 42 billion in penalties.¹²⁴

138.

YNG was the biggest of the Production Subsidiaries and accounted for around 60% of the oil production of the Yukos Group. On 20 July 2004, the Russian Ministry of Justice announced plans to sell the previously seized YNG shares in an effort to enforce the 2000 Tax Assessment.¹²⁵ At the request of Yukos Oil, Russian authorities accepted to conduct the sale of YNG by public auction.¹²⁶

139.

On 12 August 2004, the international investment bank Dresdner Kleinwort Wasserstein (DKW) was appointed to carry out the valuation of the seized YNG participation.¹²⁷ DKW provided its report on 6 October 2004 (the DKW Valuation), concluding that the total share capital of YNG had an estimated value between USD 18.6 and 21.1 billion. The report noted that, if present or future tax and environmental liabilities were accounted for, the estimated value could be reduced to a range between USD 15.7 and 18.3 billion.¹²⁸ Several alternative valuations, including one commissioned by Yukos Oil, provided ranges generally in line with the DKW Valuation.¹²⁹

140.

While YNG’s market value was being determined, YNG was itself subject to further tax reassessments by the Russian authorities amounting to approximately USD 4.6 billion. These assessments concerned the 2001-2003 tax years and were primarily based on transfer pricing violations under Article 40 of the Tax Code of the Russian Federation.

141.

Yukos Oil announced in early November 2004 that a shareholders meeting would be held on 20 December 2004 to discuss filing for bankruptcy.¹³⁰ On 18 November 2004, the Russian Federal Property Fund (RFPF) was appointed to conduct the public auction of YNG.¹³¹ Accordingly, the RFPF and the Russian Ministry of Justice concluded an agreement, which provided inter alia that the sale of the YNG shares (representing 76.786% of the company’s capital) had to be completed by 25 December 2004 and for a price not lower than RUB 246,735,447,000.18 (i.e., USD 8.65 billion), 'taking into account the recommendations of [DKW]’.¹³² The auction was announced publicly on 19 November 2004.¹³³ The notice also indicated that the auction would be held on Sunday, 19 December 2004, the earliest available date under the auction’s regulation.¹³⁴

142.

Yukos Oil sought the suspension of the auction and the adoption of interim measures, but Russian courts dismissed these applications.¹³⁵ Yukos Oil also attempted to protect YNG by filing for Chapter 11 bankruptcy in the United States.¹³⁶ On 16 December 2004, the Bankruptcy Court for the Southern District of Texas issued an order temporarily preventing certain entities (but not the Respondent) from participating in the auction of YNG.¹³⁷

143.

On 6 December 2004, a company named OOO Baikalfinancegroup (Baikal) was incorporated by a sole founder in the Russian town of Tver.¹³⁸ Baikal would be one of two participants in the auction of YNG, alongside OOO Gazpromneft (Gazpromneft), then a subsidiary of the oil giant OAO Gazprom (Gazprom).¹³⁹

144.

The auction of YNG finally took place on 19 December 2004 and Baikal won within a few minutes with its opening bid of RUB 260,753,447,303 (approximately USD 9.35 billion).¹⁴⁰ On 22 December 2004, Baikal was acquired at its nominal value by the then-State-owned Oil Company Rosneft OJSC (Rosneft).¹⁴¹ As was later disclosed, Rosneft provided the funding for the purchase of YNG, with the involvement of State-owned banks in Russia.¹⁴² President Putin acknowledged the practical nationalisation of YNG at a press conference on 23 December 2004.¹⁴³

145.

Yukos Oil later challenged the lawfulness of the YNG auction, but Russian courts dismissed the claims.¹⁴⁴ Yukos Oil’s bankruptcy application in the United States was dismissed on 24 February 2005 for lack of jurisdiction.¹⁴⁵

146.

YNG was projected to be valued at USD 55.78 billion as of the end of 2005.¹⁴⁶ Starting in 2005, a major part of the tax assessments imposed on YNG before the auction was reduced or invalidated by Russian courts.¹⁴⁷ In 2008, the Russian Government approved a restructuring plan of Rosneft’s tax liabilities (then amounting to a total of USD 2.34 billion), providing for quarterly payments over the next five years.¹⁴⁸

147.

Events prior to bankruptcy proceedings. In September 2003, Yukos Oil concluded: (i) a USD 1 billion loan agreement (the Syndicate Loan) with a consortium of Western banks led by Société Générale SA (Société Générale, and collectively the Western Banks);¹⁴⁹ and (ii) a USD 1.6 billion loan agreement with Société Générale (the B Loan).¹⁵⁰ The rights under the B Loan were eventually transferred to Moravel Investments Ltd, a company associated with the Yukos Oil shareholders.¹⁵¹

148.

The Western Banks raised concerns about Yukos Oil’s ability to repay the Syndicate Loan.¹⁵² Between May and June 2004, Yukos Oil made some prepayments¹⁵³ and provided guarantees for the Syndicate Loan and the B Loan through YNG and other Production Subsidiaries.¹⁵⁴ On 2 July 2004, the Western Banks declared an Event of Default under the Syndicate Loan,¹⁵⁵ but eventually agreed to rely on the security mechanisms.¹⁵⁶ Following the auction of YNG, Yukos Oil stopped making payments under the Syndicate Loan.¹⁵⁷ As a result, the Western Banks filed a claim against Yukos Oil for the outstanding debt under the Syndicate Loan (amounting to USD 472,787,663.10), which was recognised by the High Court of England and Wales on 24 June 2005 (the English Judgment).¹⁵⁸

149.

The Western Banks sought to enforce the English Judgment before Dutch courts, referring to Yukos Oil’s shares in Yukos Finance. The Western Banks argued that, due to the corporate restructuring that led to Yukos International’s shares being transferred to the Stichting (which had taken place earlier in 2005), the shares in Yukos Finance had become 'worthless and more or less unsellable’.¹⁵⁹ They requested that an investigation for alleged mismanagement of Yukos Finance be initiated, so that the seized shares in this entity could be 'sold at the highest possible price’.¹⁶⁰ The decision was suspended by the District Court of Amsterdam on 29 September 2005, pending further submission of documents by Yukos Oil.

150.

Initiation of the bankruptcy proceedings. On 13 December 2005, the Western Banks concluded a confidential agreement with Rosneft for the transfer of certain rights under the Syndicate Loan.¹⁶¹ In practice, the agreement provided that Rosneft would pay the outstanding debt under the Syndicate Loan (around USD 455 million), in exchange for the assignment of the lenders’ rights and subject to the Western Banks initiating enforcement and bankruptcy proceedings against Yukos Oil.¹⁶²

151.

On 21 December 2005 the Moscow Arbitrazh Court recognised the English Judgment and issued a writ of execution.¹⁶³ On 29 December 2005, the Western Banks resorted to bailiffs to recover the amounts from Yukos Oil, but the enforcement proceedings failed.¹⁶⁴

152.

On 6 March 2006, the Western Banks filed an application requesting that Yukos Oil be declared bankrupt.¹⁶⁵ Yukos Oil tried to stop the bankruptcy proceedings by requesting the bailiffs to lift the freezing orders over its property in an amount sufficient to cover the debt under the Syndicate Loan, but apparently no response was provided.¹⁶⁶

153.

In parallel, YNG (by then a subsidiary of Rosneft) submitted a separate bankruptcy petition against Yukos Oil, which was accepted for consideration on 27 March 2006.¹⁶⁷ On 29 March 2006, the Moscow Arbitrazh Court commenced bankruptcy proceedings on the basis of the Syndicate Loan and formalised the replacement of the Western Banks by Rosneft as the applicant.¹⁶⁸ By the same Ruling, Mr Eduard K Rebgun was appointed as 'temporary receiver’ of Yukos Oil.

154.

The bankruptcy declaration. The bankruptcy proceedings began as a 'supervision procedure’, with Mr Rebgun being required to convene a meeting with the creditors of Yukos Oil to determine whether the company should be declared bankrupt or to consider alternative plans of viability. In advance of this meeting, which was originally scheduled for 16 June 2006, Yukos Oil approved a financial rehabilitation plan (the Rehabilitation Plan) that would, in principle, allow the company to satisfy its debts within two years while remaining a going concern. The Rehabilitation Plan provided, inter alia:

(i) A separate cash pool, to be funded mainly from the sale of ancillary and non-core assets, would be created for payment of several claims originating in Russia, including those of tax authorities and YNG;

(ii) The claims arising from the Syndicate Loan and the B Loan (as well as other remaining claims), would be paid through the assets already made subject to attachment by Dutch courts; and

(iii) Yukos Oil would order that none of its subsidiaries pursue any claims against it, removing around USD 13.7 billion in intragroup claims.

155.

The Rehabilitation Plan estimated that the aggregate value of Yukos Oil’s available assets was approximately USD 31 billion, while the recognised claims amounted to approximately USD 29.5 billion (including the intragroup claims). Following execution of the Rehabilitation Plan, Yukos Oil was projected to remain a viable company worth over USD 15 billion.¹⁶⁹

156.

The creditors’ meeting was eventually postponed due to a hearing of the Moscow Arbitrazh Court held on 14 June 2006, where a USD 13.1 billion claim of the Tax Ministry was being considered.¹⁷⁰ Yukos Oil complained that the Tax Ministry had filed around 127,000 documents, alleging that the judge had reviewed those in only a few minutes.¹⁷¹ The tax claims were admitted into the bankruptcy, confirming the Federal Taxation Service as Yukos Oil’s largest creditor.¹⁷²

157.

On 19 July 2006, the Moscow Arbitrazh Court included two additional claims from YNG in the bankruptcy proceedings. The claims amounted to over RUB 33.8 billion (including interest) and concerned arrears from the sale of oil between YNG and certain LTR Subsidiaries.¹⁷³

158.

The creditors’ meeting eventually took place on 20 and 25 July 2006, with twenty-four creditors holding participation and voting rights.¹⁷⁴ The report prepared by Mr Rebgun estimated that the total value of Yukos Oil’s assets, following the application of profit tax to be incurred in their sale, was around RUB 458.7 billion, while the claims admitted to the bankruptcy proceedings amounted to RUB 491.2 billion.¹⁷⁵ Particularly, Mr Rebgun concluded that even in the scenario that current loss-free operations were possible, 'the oil company’s solvency is impossible to restore.’¹⁷⁶

159.

At the creditors’ meeting, Yukos Oil defended the viability of the Rehabilitation Plan and the solvency of the company, arguing that Mr Rebgun’s valuation was misguided.¹⁷⁷ However, the creditors rejected considering the Rehabilitation Plan and voted in favour of filing a petition requesting that Yukos Oil be declared bankrupt. Both decisions were approved with the favourable vote of only four of the twenty-four creditors, which held 93.87% of the claims and thus necessarily included the largest creditors of Yukos Oil: the Federal Taxation Service, Rosneft and YNG.¹⁷⁸

160.

On 4 August 2006, the Moscow Arbitrazh Court declared Yukos Oil bankrupt, initiated its liquidation and appointed Mr Rebgun as receiver of the company.¹⁷⁹

161.

On 1 October 2006, YNG formally merged into Rosneft,¹⁸⁰ as a consequence of which all of YNG’s claims in the bankruptcy were attributed to Rosneft.¹⁸¹

162.

The treatment of the Claimant’s claims in the bankruptcy of Yukos Oil lies at the heart of this arbitration. The Tribunal will consider the evidence on this in Part VI.B.2 below. Here it will suffice to summarise in outline the key steps in the proceedings that led to the final exclusion of the Claimant’s claims under the Loans from the bankruptcy of Yukos Oil:¹⁸²

(i) On 27 April 2006, the Claimant filed an application with the Moscow Arbitrazh Court to include its claims under the Loans in the Register of Creditors of Yukos Oil (the First Bankruptcy Application).¹⁸³

(ii) On 1 May 2006, the Federal Tax Service filed its objections to the First Bankruptcy Application.¹⁸⁴ This was followed by objections from Rosneft and Mr Rebgun respectively on 23 and 31 May 2006.¹⁸⁵

(iii) On 12 July 2006, the Moscow Arbitrazh Court held a hearing on the First Bankruptcy Application.¹⁸⁶ A letter from Yukos Oil confirmed its receipt of a Notice of Default from Yukos Capital dated 11 November 2015 and the company’s obligation to repay the Loans early,¹⁸⁷ but the Federal Tax Service opposed the First Bankruptcy Application on the ground that the Loans were not yet due.¹⁸⁸

(iv) On 19 July 2006, the Moscow Arbitrazh Court dismissed the First Bankruptcy Application.¹⁸⁹ On 28 July 2006, the Claimant filed an appeal from that judgment with the Ninth Arbitrazh Court of Appeal (the First Appeal).¹⁹⁰

(v) On 8 August 2006, the General Prosecutor’s Office (GPO) initiated a criminal case against the Claimant and its officers;¹⁹¹ conducting a search of the offices of its Moscow attorneys, NOMOS Law Office (Nomos), on 9 August 2006;¹⁹² seizing documents there; and interrogating Ms Titievskaya of Nomos on 11 August 2006.¹⁹³

(vi) On 28 September 2006, the Ninth Arbitrazh Court of Appeal suspended the Claimant’s appeal on the ground of the pending criminal proceedings.¹⁹⁴

(vii) On 11 October 2006, the Claimant filed a Second Bankruptcy Application.¹⁹⁵ The Federal Tax Service opposed the Second Bankruptcy Application on the same day.¹⁹⁶ The Claimant applied in November 2006 for this Application to be heard in the absence of its attorneys on the ground that it was unable to secure legal representation following the criminal investigation of Nomos.¹⁹⁷

(viii) The Second Bankruptcy Application was heard on 27 November 2006 and dismissed on 4 December 2006.¹⁹⁸ The Claimant’s appeal against that dismissal was filed on 18 December 2006; heard by the Court of Appeal on 15 February 2007 and dismissed on 22 February 2007 (the Second Appeal).¹⁹⁹ The Claimant filed a cassation appeal against that decision on 10 April 2007 (the Second Cassation Appeal).²⁰⁰

(ix) Also on 27 November 2006, the Claimant filed a cassation appeal against the suspension of its appeal from the First Bankruptcy Application (the First Cassation Appeal).²⁰¹

(x) On 17 May 2007, Mr Rebgun filed petitions with the Moscow Arbitrazh Court to invalidate the Loans;²⁰² and then filed a motion on 24 May 2007 to suspend the Second Cassation Appeal on the ground of the pendency of the invalidation proceedings.²⁰³

(xi) The Federal Arbitrazh Court granted the suspension on 31 May 2007.²⁰⁴ It also suspended the First Cassation Appeal on 20 July 2007.²⁰⁵ The Claimant petitioned the Court to remedy the circumstances that gave rise to the suspension in October 2007.²⁰⁶ but the Court finally rejected the appeal on 24 October 2007.²⁰⁷

163.

On 23 October 2006, a consortium of appraisal firms led by ZAO Roseco was selected for making the inventory and evaluation of Yukos Oil’s assets.²⁰⁸ In the report submitted after the conclusion of the liquidation, Mr Rebgun recorded the accumulation of a bankruptcy estate totalling RUB 877 billion (approximately USD 35.55 billion) from the sale of Yukos Oil’s assets.²⁰⁹

164.

Yukos Oil’s assets were divided into 20 different 'lots’ and progressively auctioned between March and August 2007, under the organisation of the RFPF and the supervision of Mr Rebgun.²¹⁰ The sale of some of the most relevant assets resulted as follows:

(i) On 27 March 2007, Lot 1 containing Yukos Oil’s remaining 9.44% stake in YNG was sold for USD 7.59 billion to Rosneft’s subsidiary OOO RN-Razvitiye;²¹¹

(ii) On 4 April 2007, Lot 2 containing a 20% stake in Gazpromneft and three minor Production Subsidiaries was sold for USD 5.83 billion to OAO EniNeftegaz, a subsidiary of Italian companies Eni and Enel S.p.A. (although the assets ended under the control of Gazprom);²¹²

(iii) On 3 May 2007, Lot 10 containing TN and other Yukos Oil subsidiaries was sold for USD 6.82 billion to Rosneft’s subsidiary OAO Neft-Aktiv;²¹³ and

(iv) On 10 May 2007, Lot 11 containing SN and other Yukos Oil subsidiaries was sold for USD 6.4 billion to Rosneft’s subsidiary OAO Neft-Aktiv.²¹⁴

165.

Following the sale of all of Yukos Oil’s available assets, the entirety of the amounts included in the first, second and third tiers of the Register of Creditors was paid.²¹⁵ Over 99% of these claims belonged to the Federal Taxation Service and Rosneft, while the claims of other entities, such as the Claimant, were not included in the Register.²¹⁶

166.

Mr Rebgun submitted the results of the liquidation to the Moscow Arbitrazh Court, accounting for additional claims arising from taxes allegedly incurred in the sale of Yukos Oil’s assets, resulting in a negative balance of funds. On 15 November 2007, the bankruptcy proceedings of Yukos Oil were formally terminated and the unsatisfied claims of creditors were declared expired.²¹⁷

167.

The Claimant sought to challenge this decision, and filed an unsuccessful application for injunctive relief requesting that the termination of the bankruptcy be withheld.²¹⁸ On 21 November 2007, Yukos Oil was finally removed from the Russian register of legal entities and, on this basis, the Claimant’s appeal was dismissed a few weeks later.²¹⁹

168.

The Tribunal begins by recalling its decision, in PO N° 1, that it would address three of the Respondent’s jurisdictional objections in a preliminary phase, and join any other objections to jurisdiction or admissibility to the merits.²²⁰ The three jurisdictional objections accordingly determined by the Tribunal in its Interim Award dated 18 January 2017 were:

(i) That '[t]he Russian Federation never ratified the ECT and applied the ECT until October 18, 2009 on a provisional basis pursuant to Article 45(1) ECT only "to the extent that such provisional application is not inconsistent with its constitution, laws or regulations’";

(ii) That '[t]he intra-company loans allegedly made by Claimant to Yukos Oil Company are not "investments" within the meaning of Article 1(6) ECT’; and

(iii) That, '[s]ince Claimant is a shell company with no substantial business activities in Luxembourg and is ultimately controlled by nationals of a third State, Respondent is entitled to deny Claimant the advantages of Part III of the ECT pursuant to Article 17 ECT.’²²¹

The Tribunal rejected the first and second of these objections by majority, and the third unanimously.

169.

In the present phase of the arbitration, the Respondent raises a number of further objections on which basis it submits the Tribunal should decline jurisdiction. The jurisdictional objections now advanced are:

(i) That the Loans were illegal under international law;

(ii) That the Loans were illegal under domestic law;

(iii) That the Claimant does not qualify as a protected investor under Article 1(7) of the ECT in light of its corporate structure and current nationality;

(iv) That the current proceedings are an abuse of process; and

(v) That the Claimant’s claim is excluded by virtue of the tax carve-out in Article 21 of the ECT.

170.

Grounds (iii) and (v) raise discrete points as to the Tribunal’s jurisdiction and can conveniently be considered and determined in this section. The Respondent’s jurisdictional objections based upon illegality (objections (i) and (ii)) raise issues that are intertwined with the facts relevant to the merits and therefore fall to be considered in connection with the Tribunal’s analysis of liability. The claim of abuse of process (objection (iv)) specifically concerns the questions whether the present proceedings seek recovery for a loss that was foreseeable when the investment was made or alternatively seek abusively to achieve double recovery. Without prejudice to the character of this objection, the Tribunal finds it convenient to consider its implications in connection with the facts relevant to causation and compensation in Parts VII and VIII below.

171.

The Respondent submits that the Claimant does not qualify as a protected 'investor’ under Article 1(7) of the ECT, on the basis that: (i) Yukos Capital is a shell company controlled by Russian nationals; and (ii) that Yukos Capital is no longer a national of an ECT Contracting State.²²² Each of these submissions will be set out in further detail below.

172.

As a preliminary point, the Respondent contends that it is not precluded from raising new objections to the jurisdiction of the Tribunal and the admissibility of the Claimant’s claims, arguing that the record demonstrates that it intended to raise several objections to jurisdiction and that the Interim Award was limited in scope to specific objections.²²³ In particular, it contends that Article 1(7) was not at issue in the jurisdiction phase of the proceedings, and that any findings in the Interim Award relating to the Claimant’s status as an investor under the ECT are limited to the objections at issue in that phase.²²⁴ In any event, the Respondent submits that the Tribunal would have the power to reconsider any findings it may have made in its Interim Award that it considers were premature or incorrect.²²⁵

173.

Turning to its substantive objection, the Respondent first submits that the ECT does not protect investments made by host States’ own nationals ('round-trip’ investments), arguing that a proper contextual reading of Article 1(7) in light of the object and purpose of the ECT mandates that its provisions should only be applied to protect investments by foreign investors.²²⁶ In relation to context, the Respondent refers to various provisions of the ECT referring only to investors of 'another’ Contracting Party without reference to Article 1(7),²²⁷ as well as Article 17 (excluding investments made by third-State nationals from ECT protection), which it submits should apply a fortiori to shell companies owned by nationals of the host State.²²⁸ It also refers to an understanding adopted by the ECT Contracting Parties, which envisages a factual determination of 'control’ to ascertain whether an investor is controlled by 'another’ Contracting Party to the ECT.²²⁹ It submits that this understanding, along with the other provisions of the ECT referred to, provides contextual support for the interpretation of 'investor’ in Article 1(6) to exclude investors of the host State.²³⁰

174.

In relation to the object and purpose of the ECT, the Respondent contends that the ECT is intended to promote and protect foreign, cross-border investment, in particular by Western investors in the former USSR, thereby excluding host-State investments.²³¹ It refers to various references in Article 2 of the Treaty to 'political and economic cooperation’, 'complementarities’, 'mutual benefits’, the 'flow of investments and technologies’, and the desire to provide a 'stable, transparent legal framework for foreign investments’.²³² It also refers to the Final Act of the European Energy Charter Conference, to which the text of the ECT was appended, which states that the Treaty was 'designed to promote East-West industrial co-operation by providing legal safeguards in areas such as investment, transit and trade’, and submits that the promotion of 'round-trip’ investments falls outside the object and purpose of the ECT.²³³

175.

The Respondent submits that international law principles further support its interpretation of Article 1(7) of the ECT as excluding 'round-trip’ investments.²³⁴ It submits that two fundamental principles are widely recognised by arbitral tribunals and national courts (and there is no evidence that the ECT’s Contracting Parties intended to derogate from them), being that the investment treaty regime is not intended to provide domestic investors with recourse against their home States,²³⁵ and that international law recognises only a beneficial or substantive owner, not the formal and legal owner of an investment.²³⁶ It refers to cases where tribunals have denied claims where an investment is owned or controlled by nationals of the host State, noting that in such cases meeting the formal definition of investor is not sufficient to extend investment treaty protections.²³⁷

176.

The Respondent also draws upon the subsequent State practice of a large number of ECT Contracting Parties to submit that 'round-trip’ investments fall outside Article 1(7) of the ECT.²³⁸ By way of example, the Respondent points to the EU-Canada Free Trade Agreement between Canada, the European Union, and EU Member States, which excludes shell companies from the scope of treaty protection.²³⁹ The Respondent also points towards the 2014 consultation notice to the Transatlantic Trade and Investment Partnership which expressly excludes that shell companies and those without 'substantive business operations in the territory of one of the Parties could qualify as an "investor".’²⁴⁰

177.

With this in mind, the Respondent submits that, although officially incorporated in Luxembourg, Yukos Capital was at all times beneficially owned and controlled by Russian nationals for illicit purposes.²⁴¹ It argues, inter alia, that Yukos Capital was managed and controlled from Moscow by the 'Yukos Oligarchs’, its banking was conducted from Russia, it has no physical presence, no business activity, no significant assets or employees in Luxembourg, its ultimate holding company (the Stichting) was under the control of the 'Yukos Oligarchs’, and the 'Yukos Oligarchs’ currently control the Claimant through a kickback agreement revealed in 2015.²⁴²

178.

Further, the Respondent argues that the abuse of Yukos Capital’s corporate structure warrants lifting the corporate veil to expose the Russian national investors beneath.²⁴³ It submits that it is a fundamental principle of international law, supported by international jurisprudence and decisions of numerous arbitral tribunals, that an abuse of the corporate structure through illegality or fraud warrants piercing the corporate veil.²⁴⁴ In the Respondent’s submission, the conduct of the Russian nationals in the present case is especially egregious, given that the corporate form of the Claimant was not abused simply to gain access to the investment treaty dispute resolution mechanisms, but also to further a criminal enterprise.²⁴⁵ The Respondent therefore contends that the Tribunal should lift the corporate veil and deny the Claimant, as a shell company controlled by Russian nationals, the protections of the ECT.²⁴⁶ It also refers to the Claimant’s submission that the Respondent has waived all veil-piercing arguments due to its counsel’s comments at the Hearing on Jurisdiction,²⁴⁷ and contends that such comments cannot satisfy the legal standard that waiver of arguments must be express or unequivocally implied.²⁴⁸

179.

Second, and in the alternative, the Respondent contends that Yukos Capital lost its qualifying Luxembourg nationality due to its 'change of domicile’ and merger into a BVI entity in 2016.²⁴⁹ It contends that it is a long-established rule of international law that a claimant must hold continuous nationality in a contracting State of the relevant treaty from the time it suffers its alleged loss until the date of the award.²⁵⁰ In support, the Respondent refers to Loewen v United States in the investor-State context, as well as other decisions in arbitrations from the first half of the twentieth century.²⁵¹ The Respondent therefore submits that the Corporate Reorganisation terminated Yukos Capital’s rights under the ECT.²⁵²

180.

The Claimant’s principal response to the Respondent’s case on Article 1(7) of the ECT is that the issues raised by the Respondent are res judicata. However, in the event the Tribunal finds otherwise, the Claimant submits that Yukos Capital is under the control of the Stichting and that the 'Yukos Oligarchs’ never exercised any degree of control over Yukos Capital or the Stichting. It also rejects the Respondent’s arguments regarding the Claimant’s Corporate Reorganisation, contending that the relevant date for jurisdiction purposes is the date of commencement of proceedings.

181.

First, the Claimant argues that the Respondent made a considered choice not to present a jurisdictional argument based on Article 1(7) in the jurisdiction phase of these proceedings,²⁵³ and submits that the same is the case for arguments relating to the Claimant as a shell company and piercing the corporate veil.²⁵⁴ It contends that the Respondent has already accepted that the Claimant is an 'investor’ for the purpose of Article 1(7) of the ECT and controlled by the Stichting, and that its current submissions regarding 'round-trip’ investments and shell companies are a flagrant disregard for the Tribunal’s Interim Award and the arbitral process.²⁵⁵ It also argues that any objections that the Respondent expressly disclaimed or which should have been made in the jurisdictional phase should be rejected, on the ground that they were not made as early as possible.²⁵⁶ It submits that res judicata is a general principle of law, and refers to Article 32(2) of the UNCITRAL Rules which provides that awards are final and binding on the parties, which it submits applies to the Interim Award.²⁵⁷

182.

The Claimant then responds to the Respondent’s substantive jurisdictional objection, arguing that the Respondent’s interpretation of Article 1(7) is flawed.²⁵⁸ It argues that there is no basis to depart from the ordinary meaning of the provision or to read words into Article 1(7), and that the Respondent’s contextual argument is circular since the provisions it invokes refer the reader back to the definition of investor in Article 1(7).²⁵⁹ It also contends that the reference to the Contracting Parties’ 'understandings’ relates to Article 1(6) of the ECT, which is res judicata by virtue of the Interim Award.²⁶⁰

183.

The Claimant characterises the Respondent’s reliance on purported subsequent practice of the ECT’s Contracting Parties as 'particularly disingenuous' since the instruments referred to by the Respondent do not have the same Contracting Parties as the ECT and do not establish the agreement of the ECT’s Contracting Parties regarding the ECT’s interpretation.²⁶¹ Finally, and with reference to the evidence of Mr Misamore, the Respondent contends that the 'Yukos Oligarchs’ did not exercise any degree of control over Yukos Capital or the Stichting.²⁶²

184.

In respect of the Respondent’s contention that the Claimant’s Corporate Reorganisation has caused the Claimant to lose standing before this Tribunal the Claimant submits that it is generally recognised that the determination of standing before an arbitral tribunal is made by reference to the date the proceedings are instituted.²⁶³ It argues that there is nothing in the ECT that requires an investor to maintain continuous nationality between the commencement of proceedings and the date of the award, and that such a requirement could require an investor to ignore all commercial and legal realities that might warrant a change in domicile throughout the duration of the proceedings (which might take many years to conclude).²⁶⁴ It submits that the Claimant was a Luxembourg entity (as Yukos Capital S.à r.l.) between its date of incorporation and until 2016, which it submits covers the date the investments were made, the date alleged violations of the ECT occurred, the date losses were sustained and the date the proceedings were instituted.²⁶⁵ For completeness, the Claimant contends that the BVI entity (Yukos Capital Ltd) is the owner of all rights and property of Yukos Capital S.à r.l., including the investment,²⁶⁶ and that the Stichting remains in control of the Claimant despite its Corporate Reorganisation.²⁶⁷

185.

Res judicata. The Tribunal approaches the Respondent’s objection to its jurisdiction under Article 1(7) as a new objection. It does not consider that the Respondent is precluded generally from bringing this objection on the ground of res judicata. When the Tribunal decided to bifurcate these proceedings, it did so on the basis that this was to enable three specific objections to jurisdiction, enumerated in [2.1] of PO N° 1, to be determined in a preliminary phase. The third such objection (as formulated in the Respondent’s letter dated 11 April 2014 and provided in [2.1](c)) was:

Since Claimant is a shell company with no substantial business activities in Luxembourg and is ultimately controlled by nationals of a third State, Respondent is entitled to deny Claimant the advantages of Part III of the ECT pursuant to Article 17 ECT.

186.

The Tribunal went on to provide in [2.2] of PO N° 1 that: 'Any other objections to jurisdiction or admissibility... are to be joined to the merits.’

187.

The objection that the Respondent now advances is brought under Article 1(7) ECT. The Respondent submits that an 'Investor’ for the purpose of the Treaty does not include a company that, though 'organized in accordance with the law applicable in [another] Contracting Party’, is controlled by nationals of the Contracting Party in which the investment was made. This objection does involve the question of the control of the Claimant, the significance of which the Tribunal will explain below. Nevertheless, it proceeds under a different provision of the ECT and engages the significance vel non of alleged control by nationals of the host State, not a third State.

188.

Further or alternatively, the Respondent alleges that, whatever may have been the previous position, as a result of the Corporate Reorganisation carried out by the Claimant since the Hearing on Jurisdiction, it has ceased to be organised in accordance with the law applicable in another Contracting Party. On any view, this objection could not be precluded by a plea of res judicata since it relates to facts and matters that arose after the Hearing on Jurisdiction and were not available to be considered by the Tribunal in its Interim Award.

189.

The statements that the Respondent’s counsel made at the Hearing on Jurisdiction are to be read in this light. The Chairman specifically referred Respondent’s counsel to Article 1(7) in the course of the Hearing and asked whether its definition of 'Investor’ affected her analysis. She replied:

To be clear, Respondent does not object on the basis of Article 1(7) ECT to the Tribunal’s jurisdiction at this stage.²⁶⁸

190.

The understanding that this statement was limited to the issues that had been bifurcated and was without prejudice to any subsequent objection that might be raised at a later stage in the proceedings is confirmed by the terms in which the Tribunal recorded the Respondent’s confirmation in its Interim Award, when it stated:

During the Hearing, the Respondent confirmed that for the purpose of this phase of the proceedings, it:

(a) Does not object to the Tribunal’s jurisdiction on the ground that Yukos Capital does not qualify as an Investor in terms of Article 1(7).²⁶⁹

191.

The dispositif of the Interim Award limits the Tribunal’s decisions at that stage to the three objections to jurisdiction that were the subject of bifurcation. It goes on to provide:

Any other objections to jurisdiction and admissibility are, pursuant to Procedural Order No 1, joined to the merits.²⁷⁰

192.

The above finding makes it unnecessary for the Tribunal to rule on the question of the circumstances (if any) in which decisions taken in an interim award on jurisdiction are capable of being reopened while the proceedings are extant. At the same time, the evidence given in the jurisdiction phase remains part of the arbitration record and available to the Tribunal in its assessment of the issues presently before it.

193.

Ownership and control of the 'Investor'. Article 26 ECT provides for the submission to arbitration of '[d]isputes between a Contracting Party and an Investor of another Contracting Party relating to an Investment of the latter in the Area of the former, which concern an alleged breach of an obligation of the former under Part III...’

194.

Article 1(7) ECT defines 'Investor’. It provides in relevant part:

"Investor" means:

(a) with respect to a Contracting Party:

...

(ii) a company or other organization organized in accordance with the law applicable in that Contracting Party.

195.

The Respondent submits that the Tribunal has no jurisdiction because: 'Although formally incorporated in Luxembourg, Yukos Capital was at all times beneficially owned and controlled by nationals of the host State, i.e., the Yukos Oligarchs.’²⁷¹

196.

In order to advance this claim as a matter of law, the Respondent submits that the Tribunal must look beyond the ordinary meaning of the text of Article 1(7). It refers to a number of material sources that it alleges are relevant to this exercise.

197.

If (which the Tribunal does not decide) these sources were relevant, it could only be on the basis that the Claimant met the Respondent’s proposed test of being 'owned and controlled by nationals of the host State’ at the material time.

198.

The material time for the purpose of determining the jurisdiction of the Tribunal is the date upon which the dispute was submitted to arbitration. This was 15 February 2013, being the date on which the Claimant claimed to accept Russia’s consent to arbitration.²⁷² Such an approach is, as the Tribunal has already observed in its Interim Award, 'in conformity with the constant practice of international courts and tribunals.’²⁷³ Investment arbitration is no exception.²⁷⁴

199.

The factual record as to the ownership and control of the Claimant as at that date was established on an undisputed basis during the jurisdiction phase.²⁷⁵ As the Tribunal then found, as from 14 April 2005, a Dutch Stichting became the sole shareholder of Yukos Capital, through Yukos International, another company in the Yukos Group.²⁷⁶

200.

At that Hearing, the Tribunal was concerned to determine an objection on the ground of ownership or control by natural persons of a third State (namely United States nationals, members of the Board of the Stichting). This required the Tribunal to determine who in turn owned or controlled the Stichting. The agreed evidence that the Tribunal received from two distinguished experts of Dutch law, called respectively by the Claimant and the Respondent, was to the effect that 'it is the board as an organ that controls the stichting and not the individual natural persons.’²⁷⁷ As a consequence, the Tribunal found that 'the "control" of Yukos Capital for the purposes of Article 17(1) of the ECT is exercised by an organisation organised under the laws of a Contracting State, namely the Stichting acting by its Board. It is not controlled by nationals of a third state, since it is the Board as a collective organ and not its individual members that exercise control over the Stichting’s affairs.’²⁷⁸

201.

This finding was reached in relation to the Respondent’s jurisdictional objection under Article 17, where 'control’ is expressly stated to be a part of the legal test. As the Tribunal has already found above, it does not bind it or the Parties per se in relation to the Respondent’s present objection under Article 1(7).

202.

Nevertheless, the evidence given on that question was and is undisputed. The necessary consequence is that, even if the Tribunal were to make the assumption in the Respondent’s favour that ownership or control of the Claimant is to be taken into account as part of the test for whether it is an 'Investor’ for the purpose of Article 1(7) ECT (which the Tribunal does not decide), the uncontradicted evidence is that, at the material time, the Claimant was not so owned or controlled. Rather it was owned and controlled by a Dutch Stichting acting by its Board.

203.

The result is that this first limb of the Respondent’s objection under Article 1(7) must fail. In reaching this conclusion, the Tribunal does not neglect the Respondent’s contention that the Claimant’s corporate veil must be pierced in light of Respondent’s allegation that the Claimant was a vehicle for an illegal enterprise. This contention necessarily depends upon a consideration of the facts and matters upon which the allegation of illegality depends, to which the Tribunal will turn in Part VI.C below.

204.

Continuous nationality. The Respondent then objects that, even if the Claimant met the test of Article 1(7) at any earlier date, it has ceased to be 'a company or other organization organized in accordance with the law applicable’ in a Contracting State, as a result of a corporate reorganisation by which it was merged into a BVI entity in 2016. It submits that, in order to be able to continue to invoke the jurisdiction of the Tribunal, the Claimant must maintain the nationality of a Contracting State continuously until the date of the Award.

205.

The Tribunal rejects this submission as a matter of law. As it has observed above, the constant practice of international courts and tribunals is to determine jurisdiction as at the date of institution of the proceedings. There are sound reasons of principle for this. That is the date on which the Tribunal is seised of the dispute as formulated in the Claimant’s claim. If the court or tribunal had jurisdiction at that stage on the basis of a valid submission by way of consent by both Parties, it cannot lose its jurisdiction in that case by a subsequent change in the factual situation.²⁷⁹ The same consideration applies to the fulfilment of the elements of the instrument of consent. The court or tribunal is determining its jurisdiction on the basis of facts that have arisen up to the date of the institution of proceedings and not thereafter.

206.

The ECT contains no express provision that would support a requirement that continuous nationality must be maintained to the date of the Award. The Respondent alleges that such a requirement is to be implied from what it characterises as Tong established rules of international law.’²⁸⁰ Putting aside for present purposes the question whether rules of customary international law on the nationality of corporations are applicable within the framework of the specific provisions of the ECT, the Respondent’s submission must in any event be rejected because the rule for which it contends is not a rule of customary international law.

207.

The Respondent relies upon the Award of a NAFTA tribunal in the Loewen case.²⁸¹ To the extent that this case may be said to stand for a broad proposition that, as a matter of customary international taw, a claimant must maintain its nationality continuously until the date of the award, the International Law Commission has rejected it. Save in cases where the corporation acquires the nationality of the State against which the claim is brought after presentation of the claim²⁸² (which was the position in Loewen, but is not the case here), the Commission, in its Draft Articles on Diplomatic Protection 2006, adopted the date of presentation of the claim as the final date for the determination of nationality.²⁸³

208.

The Commission expressly disapproved the suggestion in Loewen that nationality must be maintained until final resolution of a claim. It decided that it 'was not prepared to follow the Loewen tribunal in adopting a blanket rule that nationality must be maintained to the date of resolution of the claim... Instead, preference is given to the date of the official presentation of the claim as the dies ad quem.²⁸⁴

209.

This Tribunal finds this to be a correct statement of the current position in customary international law. It follows that, even if it were to accept the Respondent’s submission that a rule from international custom on nationality should be imported into the construction of the definition of 'Investor’ in Article 1(7) ECT, the Respondent’s submission must be rejected because customary international law does not support the rule for which it contends.

210.

The Respondent contests the admissibility of the Claimant’s expropriation claims on the basis of a composite act (see Section V.A.1(a)). The Respondent submits that the composite act expropriation theory is precluded by the taxation carve-out in Article 21 of the ECT, which excludes taxation measures from its protections. According to the Respondent, the measures referred to by the Claimant to support its expropriation claim are legitimate taxation measures, which fall within the scope of the carve-out.

211.

The Claimant disputes that Article 21 precludes the Claimant’s claims or the Tribunal’s jurisdiction, arguing that Article 21(1) is not an unqualified carve-out and that the acts complained of are not taxation measures. These arguments will be discussed in turn below.

212.

The Parties’ views in respect of the objection based on Article 21 are summarised below, without prejudice to its proper characterisation as an objection to admissibility or the Tribunal’s jurisdiction.

213.

The Respondent claims that the ECT’s taxation carve-out in Article 21 precludes the Claimant’s composite act theory of expropriation.²⁸⁵ In the Respondent’s view, the term 'taxation measures’ in the ECT covers 'the panoply of regulatory activities related to the State’s tax regime and the payment of taxes, including tax legislation, enforcement and collection of taxes.’²⁸⁶ It submits that this interpretation is consistent with the ordinary meaning of the terms 'taxation’ and 'measures,’ as well as with the ECT’s travaux préparatoires.²⁸⁷ According to the Respondent, arbitral tribunals have interpreted the term 'taxation measures’ broadly and have applied a prima facie test when determining whether a taxation carve-out applies to certain measures.²⁸⁸

214.

The Respondent contends that the allegations used by the Claimant to support its expropriation claim relate to taxation measures under the ECT, as they were taken to implement tax laws and therefore fall within the Article 21 carve-out.²⁸⁹ The Respondent specifically refers to: (i) charging Yukos Oil with tax liabilities based on re-assessments; (ii) freezing Yukos Oil’s assets to forestall payment of the alleged tax claims; (iii) threatening the revocation of Yukos Oil’s oil licences; (iv) conducting searches and seizures on Yukos Oil’s operations; (v) conducting the seizure and auction of YNG; (vi) conducting bankruptcy proceedings in respect of Yukos Oil; and (vii) auctioning the remainder of Yukos Oil’s Russian assets.²⁹⁰ According to the Respondent, each of these actions was taken to implement tax laws and therefore falls within the Article 21 carve-out.²⁹¹

215.

The Respondent submits that Article 21(1) does not require a determination of whether a taxation measure is bona fide.²⁹² It contends that such a determination would be improper given the provision’s aim of preserving States’ sovereign prerogative to conduct fiscal affairs.²⁹³ In any event, the Respondent submits that the taxation measures were legitimate, as is the basis for its case on the merits.²⁹⁴

216.

Further, the Respondent contends that the 'claw-back’ in Article 21(5)(a) does not apply to the alleged composite expropriation.²⁹⁵ It distinguishes the term 'taxes’ from 'taxation measures,’ and submits that the difference in wording denotes a difference in scope.²⁹⁶ 'Taxes,’ the Respondent argues, are monetary charges imposed by the State,²⁹⁷ which does not extend to executive or judicial measures that administer or enforce such monetary charges.²⁹⁸ To the extent that such an interpretation would create a 'hole’ in the legal regime, the Respondent submits that would be a 'hole’ that the ECT drafters intended to include.²⁹⁹ It therefore contends that the actions referred to by the Claimant fall outside the scope of the 'claw-back’ provision.³⁰⁰

217.

In the alternative, the Respondent submits that the Claimant did not follow the referral mechanism established in Article 21(5)(b)(i),³⁰¹ contending that the Claimant’s failure to refer the matter to the tax authorities renders its composite expropriation claim inadmissible.³⁰² It argues that the Article’s text and relevant jurisprudence make clear that the referral process is mandatory,³⁰³ and contends that the use of the word 'shall’ indicates a legally binding obligation.³⁰⁴ In the event that the Article does contain an exception where the referral to tax authorities would be futile, the Respondent submits that the Claimant has advanced no evidence in this regard.³⁰⁵

218.

The Claimant disputes that Article 21 precludes the Claimant’s claims or the Tribunal’s jurisdiction.³⁰⁶ It argues that Article 21(1) does not provide an absolute, unqualified carve-out from investment protection,³⁰⁷ that the acts complained of in this case are not 'taxation measures’ under Article 21(1),³⁰⁸ and that, even if they could be classified as such, the 'claw-back’ in Article 21(5) would apply.³⁰⁹

219.

The Claimant submits that Articles 21(3) and 21(5) provide that a tax action falls outside the definition of 'taxation measure’ if it is applied in a discriminatory manner, or else is expropriatory or discriminatory.³¹⁰ To the Claimant, these exceptions demonstrate that the ECT provides investment protection with regard to taxes and contemplates 'independent oversight’ of host-State taxation measures.³¹¹

220.

The Claimant also disputes that the impugned actions constitute 'tax measures’ within the meaning of Article 21(1).³¹² It argues that a complete analysis must include a factual component—whether the State implemented the taxation measure with the aim of generating revenue to be used for public purposes.³¹³ If the answer to this question is no, then, in the Claimant’s view, the State action is not truly a taxation measure and therefore falls outside the scope of Article 21(1).³¹⁴

221.

According to the Claimant, this interpretation complies with the object and purpose of the ECT to protect and promote investments in the energy sector.³¹⁵ It contends that the Respondent’s interpretation would allow a State to evade ECT obligations by disguising treaty breaches as taxation measures.³¹⁶ In this regard, the Claimant submits that its interpretation is consistent with the good faith requirement in Article 26 of the Vienna Convention on the Law of Treaties,³¹⁷ and contends that its interpretation of Article 21 of the ECT has been confirmed by various investment tribunals interpreting that Treaty.³¹⁸ The Claimant therefore contends that the Respondent’s actions cannot constitute 'taxation measures’ within the scope of Article 21(1).³¹⁹

222.

In the alternative, the Claimant submits that the 'claw-back’ in Article 21(5) applies.³²⁰ First, the Claimant refers to the Respondent’s argument that the 'claw-back’ applies only to 'taxes’ and not to the administration and enforcement of the same.³²¹ The Claimant argues that this distinction is illogical, since the 'claw-back’ concerns expropriation, but tax laws alone, without administration and enforcement, cannot effect an expropriation.³²² It further contends that taxation can constitute an expropriation whether or not it results in the insolvency of the taxpayer.³²³

Alan Campbell McLachlan	Président
J. William F. Rowley	Désigné par l'investisseur
Brigitte Stern	Désigné par l'Etat

Yukos Capital c. Russie

Documents de l'affaire

Avocats, autres représentants, expert(s), secrétaire du tribunal

Final Award

LIST OF DEFINED TERMS

I. INTRODUCTION

A. The Parties and their Representatives

B. Background to the dispute

II. PROCEDURAL HISTORY

A. Commencement of the Arbitration

B. Constitution of the Tribunal and Preliminary Procedural Matters

C. Jurisdiction and Admissibility Phase

D. Merits Phase

1. Stay of the arbitration pending set-aside proceedings in Switzerland

2. Procedural calendar and written submissions

3. Claimant’s corporate reorganisation

4. Document production

5. Motion to strike

6. Expert reports

7. Security for costs

8. Hearing on the merits

9. Post-Hearing proceedings

III. FACTUAL BACKGROUND

A. The Claimant

B. The Structure of the Yukos Oil Business

C. The Loans

D. The Yukos Oil Tax Assessments

E. The Enforcement against Yukos Oil

1. Enforcement of Tax Assessments

2. The Yuganskneftegaz auction

F. The Bankruptcy Proceedings

G. The Exclusion of the Claimant’s Claims from the Bankruptcy of Yukos Oil

H. The Liquidation of Yukos Oil

IV. JURISDICTIONAL OBJECTIONS

A. Introduction

1. Tribunal’s consideration in Interim Award on Jurisdiction

2. Remaining jurisdictional objections

B. Objection (III): Claimant’s Status as Protected Investor

1. The Respondent’s position

2. The Claimant’s position

3. The Tribunal’s analysis

C. Objection (V): Article 21 Carve-Out

1. The Respondent’s position

2. The Claimant’s position